Market breaks support
For those who presumed that the funds would be aggressive buyers in early December, and then established longs ahead of that presumed buying, the first half of December has been a huge disappointment, not to mention a huge hit to the wallet. Funds have not really appeared in force so far this month, and it looks like it will be another quiet December for fund activity. Volume has been down significantly since Thanksgiving and likely will stay down through the holidays.
In response to the funds' no-show, there was plenty of long liquidation over the last two weeks, with last Thursday's performance showing the market buckling and taking out the 50% support that had held for a few days.
Informa came to the rescue on Friday with their winter wheat planting projections of 39.4 million acres, which is well below last year's 43.3 million acres. The market actually seemed surprised by that number and rallied enough to recoup half of Thursday's losses, which only took prices back to the just violated 50% retracement (testing the breakout).
It's been long expected that winter wheat plantings would be down this year, particularly for soft red regions where corn and bean harvest has been so slow, but also in hard red country where they've had numerous rain delays along with the late corn harvest in the eastern fringes.
This is where things could get interesting for wheat. Lower winter wheat plantings almost ensure a decline in production, but spring wheat plantings could also be threatened. North Dakota has seen their spring wheat plantings decline steadily over the years, and with a huge crop this past year of mostly low-pro wheat, alternative crops may offer more incentive there. It will up to spring wheat futures in Minneapolis to carry the load if there is concern about too much of a drop in total wheat plantings.
Export sales for the U.S. continue to struggle, even though this past week was one of the better ones recently. To date, we've sold 66% of the projected total, 15.8 MMT sold vs. 23.8 MMT projected. That compares to the average of 78% sold by now. It would seem highly likely that USDA will have to lower projections again in this second half of the marketing year.
Speaking of exports, once again we got snubbed by Egypt who bought another 360 TMT last week and again the bulk of it coming from Russia, with 300 TMT from them and 60 TMT from France. To top it off, Egypt is reportedly now in negotiations to establish a long term agreement with Russia for importing wheat. So much for Russia not being able to meet the stringent Egyptian quality requirements.
Technically, after breaking below the 50% retracement that had held for a few days, the market looks poised for more downside pressure. The bump on Friday quickly took us back to the breakout, which has now become notable resistance. It will take a trade above the swing high of 5.48 basis Chicago March to negate the downward leg. For now, it looks like we'll take a look at the October low over the next couple of weeks, but I think those lows will hold and provide the base for another rally, similar to the October/November rally.