Louise Gartner: Markets calming?
After a volatile start to the week from the plantings and stocks report, the wheat markets actually calmed down to the point of just single digit settlements and eerily quiet trading sessions. Except, that is, for Minneapolis wheat where the cash markets once again surged higher and pulled futures right along with them. It looks like the May Minneapolis will be as exciting and volatile as the March as it approached expiration.
A look at the plantings and stocks report shows us that USDA projects an increase in spring wheat plantings of 1 million acres, and durum to be up .5 million. Winter wheat was raised 230,000 from January's number to 46.84 million, taking total wheat acres to 63.8 million â€“ up 3.4 million, or 6% over last year.
Stocks were also higher than expectations at 710 million bushels, 40 million higher than pre-release estimates. USDA will release their monthly supply/demand report on Wednesday, it will be interesting to see if those additional stocks find their way into the ending stocks number. The higher stocks number cast a negative tone to start the week, but was quickly shrugged off as weather regained center stage.
Too much rain in the Midwest and not enough in the western plains or northern plains continues to be the weather story this spring. Producers in the far western central and southern plains are faced with decisions to replant to another crop or stay with what they've got. With corn prices above $6, replanting to a feed grain is pretty tempting. Crop condition ratings continue to show the deterioration as poor/very poor ratings from Texas to Kansas increased while several rain events completely missed that region that needed them most.
The rest of the world appears to be faring much better as the northern hemisphere breaks dormancy. The Black Sea region is doing very well as temps warm up and moisture is good throughout their major growing regions. China had some dryness issues, but recent rains have subdued drought talk and their major growing regions, too, look very good as the crop gets started. The EU also is warming up and ready to go for what looks like a bin buster crop there as well. Spain still has some dryness issues, but most other areas look just fine for moisture. Of course, the Canadian prairies are experiencing much of the same drought issues as that of our northern plains, but forecasts call for rains over the next couple of weeks; we'll see if those actually materialize.
The Black Sea region has gone so far as to project that if weather cooperates, they will export more wheat this coming year than the US. That's a tall order, but they have certainly been a formidable force these past few years and it's no secret of their efforts to improve yields, quality and export presence. In 2007/08, they are projected to export 22.6 MMT of wheat, while the US is on track to export 33.3 MMT.
Demand has picked up on this sell-off with a slate of small orders from usual buyers; but some interesting players are present as well. We see Brazil in for US and Canadian wheat even as Argentina finally re-opened their export program. We also saw Egypt buy US wheat as Russia announced that they were extending their export tariff until July. Demand continues to be impressively robust, considering a much needed harvest begins in less than two months.