The wheat complex has gone into holiday mode along with the other markets, seeing declining volume and general liquidation before the typically slow days between Christmas and New Year's. We've essentially gone into a trading range at the bottom of the sell-off, unable to sustain rallies, but at least not breaking down any more.
USDA issued their monthly crop report on Monday with little fanfare. They did lower exports for wheat by 25 million bushels (mb), taking the total projection down to 900 mb. They increased food usage by 5 mb, and raised ending stocks 20 mb to 438 mb.
World production was raised almost 2 MMT to 588 MT, and ending stocks were also increased by 2 MMT to 120.7 MMT. Argentina and Canada each saw a 1 MMT production increase, with Argentina's exports increased 1 MMT to 9.5 MMT, compared to 8.8 MMT last year. Canada's exports were left unchanged at 20.5 MMT, compared to 16.1 MMT last year.
Of the five major exporters (US, Canada, EU, Argentina and Australia), only Canada had a better than average crop. For that reason, prices for high quality wheat will likely be kept in check, despite very tight US and world stocks. Argentina's crop started out with some problems, but timely rains enabled about an average crop for them.
Informa released their acreage estimates for next year, including corn and soybeans but not spring wheat. Winter wheat plantings were projected at 44.0 million acres (ma), which is up 3.4 ma from last year, but down almost 2 ma from their most recent projection. Corn acres were estimated at 85.9 ma, up 7.3 ma from last year and up 1 ma from their last projection. This is the largest year/year increase in corn acreage in history. Soybeans were estimated at 70.4 ma, down 5.2 ma from last year, but up .43 ma from their last estimate.
Here in the US, much needed rains are forecast for the central and southern plains. Precip this fall for the plains has been quite spotty, with most far southern areas getting plenty of moisture early in the planting season, except for much of Oklahoma. Throughout the fall, however, the dryness has crept back into most growing regions of the plains. The market has shown little concern at this point because the crop is dormant, but these rains will certainly be beneficial for soil moisture and if the market does take notice, will be deemed bearish.
Taking a look around the world, the Black Sea region reported that they expect to see wheat production up around 11% next year on increased plantings. India is extending their duty-free import status until Feb 28, 2007, just before their harvest during April. They expect next year's wheat production to be 74.0 MMT, compared to 68 MMT this year. France projects wheat plantings to be up 1.5% at 4.87 million hectares. China's government continues to sell wheat into their domestic market as they try to keep a lid on high wheat prices.
As we move toward spring and barring any weather disasters in another major producer, prices are likely to continue eroding as the big increase in worldwide acreage refills the pipeline. The technical picture for wheat took a major hit with the gaps from two weeks ago and the bears will be aggressive sellers on rallies, especially if we can work our way back up to the gap levels. Wheat has lost its leadership of the grain complex, and is now a follower of corn.