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Early spring wheat harvest adds pressure

Agriculture.com Staff 02/12/2016 @ 6:30pm

The gains of last week didn't last long as we quickly deflated to start the week, finding some support near the June lows. With the sudden onset of spring wheat harvest, heavy farmer movement of pre-sold wheat, and moderating weather forecasts for the Midwest, the grain complex saw a week of choppy price action that was generally weak.

The spring wheat tour finished barely in front of the combines, and in some cases actually behind them. Some of the fields that would have been surveyed on the tour had to be cancelled because they'd already been harvested! This is yet another example of the drought stress. Spring wheat harvest is progressing quickly, and producers are delivering on record volumes of forward contracted wheat. The basis is responding by moving lower and will likely remain under pressure until the harvest is over.

The decline in wheat prices has once more made the US competitive on the world market, reflected in last week's export sales at 465,000 MT, the highest sales in several weeks. And the business keeps coming, Egypt in for 285,000 this week with 115,000 coming from the US and 170,000 Canadian; Tunisia was in for 175,000 of Black Sea wheat. India is looking to increase government stocks with a tender for another 400,000 milling wheat and Iraq is looking for at least 150,000 with rumors it may be as high as 1.5 MMT. It is interesting to note that the EU did not sell any wheat this week, as they try to assess crop damage from their recent heat wave.

The International Grains Council reduced their world wheat production estimate for this year by 9 MMT to 596 MMT; USDA currently has world wheat production at 605 MMT. Using USDA's figure, the world stocks/use ratio is already at an all-time low, which includes more than the usual share of feed wheat. It would appear that this ratio will only get tighter, and in particular for quality wheat.

The market is undergoing another round of harvest pressure as we wrap up winter wheat harvest in the north and quickly move through spring wheat harvest. But, the fundamentals remain strong with quality wheat stocks very tight. As the demand season resumes this fall, I expect that we'll see Kansas City resume the leadership to the upside. While the fundamentals for soft red wheat are bearish, Chicago will likely tag along simply because that's where the funds will be most active.

As we wrap up a disappointing Northern Hemisphere harvest we'll turn our supply attention to the Southern Hemisphere, where production potential has already been shaved for both Argentina and Australia. Both countries continue to struggle with hot/dry weather and planting progress, setting the stage for potential issues there as well. This wheat market is poised for more fireworks as we move through the fall months.

Technically, look for support in KC Sep at this week's low of 4.81, then the swing low of 4.77, followed by the June low and harvest low of 4.665. Resistance should show at the trough of 5.005, and then the swing high of 5.15. In Chicago Sep, look for support at this week's low of 3.80, followed by the June and harvest low of 3.74. Resistance should show at Friday's high and breakout of 3.91, followed by the trough at 4.04 and then the swing high of 4.14.

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