Harvest pressure developing
Wheat moved in a choppy type of price action last week, led higher by corn, which once again surged to a new all-time high.
But by the time the week was over, prices hadn't really moved much from the end of last week. After testing the April break-out resistance at least three times during the week, wheat finally softened into Friday's close, looking at a harvest that was about to resume some momentum after a number of rain delays.
The harvest has certainly been a start/stop affair, and the rains that were the cause of it also lent to some quality declines and disease issues spreading into the south/central Kansas region. Harvest progress so far has been slightly behind schedule, but the weather is clearing and fields are ripening quickly, so the pace is expected to increase significantly during the next week.
Quality issues are indeed surfacing for wheat in the south/central region of Kansas. Test weights and proteins are all over the map, reflecting where rains have been persistent and where they've not been an issue. As the harvest moves northward, it is expected that quality problems will subside. The trade also expects to see impressive yields in northern Kansas and further into Nebraska.
Basis has seen notable pressure as soft red values are at extreme lows against the Chicago front month. As we head into delivery period, those levels will be closely monitored by the CFTC for possible market manipulation. Spec involvement, however, is usually very limited during the delivery period.
Iran has been an active buyer in the markets over the last couple of weeks. Just recently, they announced a significant crop shortfall and would need to import up to 5 MMT by March '09. They've been aggressive with up to 1 MMT bought from Canada, and another 80,000 MT from Russia. They rejected Ukrainian wheat because quality was too poor. Pakistan also is back into the market with a purchase of 140,000 and another for 200,000 just in the past week. They, too, experienced poor production and will reportedly need to import 2.4 MMT this year.
Argentina and Australia are both trying to wrap up very slow planting seasons. Both experienced dry conditions which delayed plantings. However, Australia has received the needed rains in New South Wales and producers are completing plantings. Argentina has received limited rains, and they are reporting that wheat plantings will be at a 15 year low at 4.8 million hectares, down 12% from last year. Political issues have also interrupted plantings as producers engage in the on again/off again strike with the government.
Winter wheat harvest in China is in full swing, with very few weather problems noted. They have projected wheat production at the second highest in history, and it is very likely those projections could still increase as they have had a near spectacular growing season. Their most recent production estimate sits at 112.5 MMT, compared with USDA's 114 MMT.
India is again increasing their '08 production estimates, taking them up another 1.2 MMT to 78 MMT. They've also suggested they may make some wheat available to the open market, as the government has procured all that they need and supplies are still plentiful. To say the least, they are in a much better position than the last two years where they've been major world buyers. Their first purchases two years ago actually were the very beginning of this record bull market.