Louise Gartner: Wheat rally wanes
The wheat complex struggled to hold onto the gains from the bullish crop report, spending most of the week leaking the rally away. We did manage to hold above the gap from the report, but bullish enthusiasm lasted all of one day and momentum died almost as quickly as it was brought to life on the heals of positive winter wheat plantings numbers and very bullish corn and bean production numbers.
The bullish fundamentals for wheat waned as storm after storm moved across the parched central and southern plains. Dormant or not, that much moisture (most of which will soak into the soil) will set the stage for excellent growing conditions when temps turn warm and the wheat begins to grow.
Given those fundamentals, buyers are content to be hand-to-mouth despite the extremely tight old crop stocks. Unless there is a supply scare in the few months or corn prices regain their upside momentum, wheat prices will struggle and rallies will be eagerly sold. Price action will remain choppy as we work through the next few months of tight supplies on to more abundant new crop supplies.
The export market is still a very competitive arena, as we see Russia remaining a major player and, in effect, setting the tone for world prices. The US did sell 55,000 MT of soft red winter to Egypt, but once again Russia got the bulk of the business with 120,000 MT. We keep waiting for them to run out of wheat, but obviously that has yet to happen.
As the fundamentals for wheat continue to erode, what little bullish enthusiasm that remains rests with the corn market. Corn took over leadership of the grain complex several months ago and remains solidly at the forefront today. The spreads between corn and Chicago or Kansas City wheat are close enough that wheat feeding is becoming an option.
Despite the prospects of a large wheat crop coming in this summer, stocks of old crop are still very tight and the idea of feeding this kind of value wheat will certainly grab the market's attention. Until we get past the pollination stage of hard red winter wheat in the central plains (April/May), I think that at least Kansas City futures will hold enough of a premium to corn to prevent feed rations switching to wheat.
Chicago might be a different story with plentiful stocks of old crop and good prospects for new crop. Being the lower quality wheat anyway, it is usually the first to reach feed grain status, and thus could see its spread with corn narrow even further. When corn reached its all-time high in 1996, Chicago wheat actually traded at a discount to corn so it's not impossible to see that spread come much closer together.
Technically, KC March should find support at the first gap at 4.845, then the second gap from 4.74 - 4.765. The next support will be the major swing low of 4.67. Resistance should show at the trough of 4.93, then the 4.95 level, followed by the swing high of 5.06. In Chicago March, look for support at the old gap at 4.63, followed by the trough at 4.575 and then the swing low and breakout at 4.475. Look for resistance at the swing highs from 4.85 - 4.865. The next resistance should show at the gap from 4.88 - 4.945 Then look for resistance at the trough of 5.14, followed by the swing high at 5.215.