Louise Gartner: Choppy Price Action
A wild ride this week in the wheat complex, sharp moves both ways as the market watched the weather and then watched a new financial world arise as the government fired the big guns to juice the economy. With Wednesday's FED announcement of another $1 trillion plus being created out of thin air, traders presumed rampant inflation was inevitable so they crushed the dollar and bought commodities.
Right or wrong about inflation in a deflationary environment, the general perception is that commodities will be a good hedge against that inflation and grains are no exception. Funds were major buyers of grains last week, sharply reducing their short positions and even getting net long corn and Kansas City wheat. Wheat has the added support of dry conditions in much of the southern plains and very stressed crops in the panhandles and further into Texas. There is also some support emerging from the likelihood that spring wheat plantings will be delayed and may even lose some acres. But, it's still early to be making that assessment.
Moisture is abundant in Nebraska, South Dakota, much of Kansas and across much of Oklahoma as well. Therein lays the dilemma of the marketplace. How does it factor in the dryness and stress of a relatively large area, but also recognize the great yield potential in much of the rest of the plains? The answer is the part of choppy price action we've seen lately. The rest of the choppy action is from the financial markets and their wake of influence into virtually all other markets.
Dry conditions notwithstanding, the market is still keenly aware of the large world stocks of old crop and the growing competition in the export market as countries ramp up sales to make room for the new crop. Virtually across the Northern Hemisphere, the crop was planted into good moisture and was in healthy condition as it went into dormancy. There was little winter stress on most of the crop and now we're entering the growing season in the Northern Hemisphere with plenty of moisture available and mild weather so far.
The dry regions of China have had a soaking rain event that should get the crop started well, but they will certainly need timely rains on the non-irrigated wheat. The only other trouble spot of the Northern Hemisphere is here in the US, and that region is shrinking after this rain/snow event. There is still plenty of opportunity for weather to cause problems, but for now, the stressed areas do not appear large enough to create a serious worry in the marketplace.
The seasonal tendency is for the market to pull back into late March/early April. If it does, it is unlikely that it will take out recent swing lows from early March since those appear to be strong, longer term lows. Technically, we seem to be having trouble at last week's highs as the market struggled for several days to continue the upward momentum. Prices will likely pull back but find support at the March lows.
The strength in the Dow and the dollar's weakness helped push grains higher for the week, and that could well continue, but eventually wheat will still have to compete in the export market and last week's export sales report was a stark reminder of how difficult that can be. Sales were reported to be just 235,000 MT, which was below the range of estimates. While our pace is still pretty much on track to reach the newly lowered projections, US wheat prices are still the highest in the world and as much as 50 cents/bu higher than the Black Sea. There is no doubt that exports will continue to be a big challenge for us, particularly if the Northern Hemisphere comes in with a big crop.