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Louise Gartner: Wheat still looking for direction

Another choppy week for the wheat complex, with Monday again testing the major lows followed by two strong days, only to run into selling at the 40-day moving average and then retracing much of the small rally to finish the week. This has been typical price action lately for this market, which has been stuck in a trading range since early February.

While the old crop fundamentals are very bearish, and so far the new crop is off to a good start, prices haven’t been able to take out the major lows of early Feb ’10 and Oct ’09. That said, the rally power is anemic at best and while we are holding those key supports, the market has been unable to muster up enough energy to take out even minor swing highs.

New crop hard red winter is breaking dormancy across the central plains, but growth is slow as temps are generally still cool and more cold and snow are in the forecast. Crop conditions have improved over the last couple of weeks in the plains and prospects look pretty good for hard red winter at this point. The wet spring has hampered top-dressing, but the slow growth is extending the time window for producers to get into the fields. However, this latest storm could push them to the edge of even that extended window.

Of course, the northern plains are well behind normal as well, with flooding being their concern at this point. And producers in the Midwest are watching the calendar as well, anxious to get into the fields so they can do last fall’s fieldwork first before they even start with spring’s work. This will be a very busy spring for them and the prospect of rain delays has added an element of support to the corn and soybean market.

Taking a look at the other major producers in the Northern Hemisphere, we see crops breaking dormancy pretty much everywhere, with crop conditions ratings and production estimates starting to pop up as well. Two weeks ago, Russia projected that they would lose 6-10% of their winter wheat to winter kill, higher than last year and a surprise considering their relatively mild winter.

This week Ukraine estimated that they would lose 10-15% of their winter wheat and up to 70% of their winter rye due to a dry planting season and ice cover that has been a problem for much longer than the 60-day threshold for wheat to survive. To date, they estimate having already lost 30,000 hectares, with another 110,000 at risk; not as much as 3 years ago when they lost 1 million hectares, but still a noteworthy loss nonetheless.

The European Union also put out an early production estimate for soft wheat at 134 MMT, down about 600 TMT from earlier estimates but still 3% higher than last year.

And then there’s China, always a wild card. A year ago, we heard practically every day about how dry their winter had been and their concerns for the winter wheat, even though they had planted into good conditions in the fall of ’08 and eventually cut a very good crop. This year has been a much different story. Virtually no news out of China about their winter weather and/or crop concerns. The difference is that they may indeed actually have a crop problem and the last thing they want to do is push prices higher by reporting it.

Last fall, they obviously were concerned about dryness as they were cloud seeding in November right over their major winter wheat region. This spring, weather reports suggest that the southern winter wheat areas are experiencing dry conditions and the northern areas are under ice with frigid temps. With China’s statistics it’s always a guessing game, as their ‘real’ stocks are very difficult to measure. According to official government data there in China and also here in the US, they have plenty of wheat (and total grain) stocks on hand. But considering that they are the world largest consumer of wheat, it wouldn’t take much to deplete those stocks.

This week, export data suggested China had imported 400 TMT of Australian wheat so far this marketing year, more than double that of last year. Australia suggested that total sales could reach 700 TMT by the end of their marketing year. It appears that most of that wheat is being used to replace government stocks that are being rotated out to prevent them from deteriorating in quality.

Technically, prices are still holding those important lows of early Feb and last Oct. Hedge funds increased their net short position in wheat, getting close to the record again. For now, I still think we need to give the market some room to the upside until we get a better look at crop prospects and planting conditions for spring grains. The mere fact that these lows have held with all of these negative fundamentals suggests that the selling just isn’t that strong yet down here. And if these major short positions need to cover for whatever reason, it could be a very large and quick updraft, similar to what we saw last fall.

This publication is strictly the opinion of its writer and is intended solely for informative purposes. It is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named.  Information is obtained from sources believed to be reliable, but is in no way guaranteed.  Futures and options trading always involve risk of loss.

Another choppy week for the wheat complex, with Monday again testing the major lows followed by two strong days, only to run into selling at the 40-day moving average and then retracing much of the small rally to finish the week. This has been typical price action lately for this market, which has been stuck in a trading range since early February.

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