Prices buckle as harvest nears
The impending harvest was just too much for the wheat complex last week, despite a number of positive fundamental developments.
There is a strong seasonal tendency for wheat prices to falter this time of year, and with the prospect of a large winter wheat crop quickly maturing there was little hope for the bulls to argue their case.
Corn didn't offer much help, either, as it failed to move higher after filling the gaps from last week. The strength in the soy complex was lost on both wheat and corn, with their fundamentals and technicals clearly more bullish. So, for now at least, I would expect wheat to buckle a bit further under the weight of harvest and technical liquidation and being the short leg of spreads against corn and beans.
Down the road, the bulls do have some things to look forward to. We see the India delegation in the US making progress in resolving phytosanitary issues with US wheat, raising the prospect of actually purchasing our wheat. That's very encouraging, particularly since they've just issued a 1 MMT tender that expires soon. Market watchers suggest that while India is tendering for 1 MMT, they may not buy near that much because of high world prices. The prospect of purchasing from the US is made more difficult because of the high cost of freight.
China reported that their main wheat growing province of Henan, which produces about 24% of their total wheat production, is experiencing significant stress in half of its 5.0 million hectares. China has already lowered average yield projections because of ongoing dryness issues. Weather forecasters caution that this time of year it usually is dry in the North China Plain, and that the reason wheat is already stressing is because of its advanced state resulting from a warm winter and spring. Rains are projected for the North China Plain this week.
Egypt snubbed the US last week with a purchase of 120,000 MT of wheat from Russia and Kazakhstan. However, over the weekend they bought another 120,000, this time 60,000 of US soft red winter with the balance from Russia or Kazakhstan. The encouraging news is that, even with high ocean freight costs, we're still managing to get some sales to regions where the CIS has been very dominant.
Indeed, last week Ukraine announced that they were withdrawing their export tariff on wheat and their exporters suggested they'd have 650,000 MT to sell immediately. It looks like they're emptying storage to prepare for the 2007 crop, despite numerous reports of the Ukraine being dry and developing crop stress. In addition, Russia has already offered 2007 for sale, clearly showing that they intend to be as aggressive as always in the export market.
Taking a quick look around the world, we see the CIS states are starting to show crop stress from extended dryness and over the weekend experienced some heat that further depleted soil moisture. Rains are forecast and are a must to ward off serious yield declines. The Balkans, too, were experiencing some crop stress because of dry conditions but good rains are forecast for this week. It looks like Europe has warded off serious crop stress with rains over critical regions in the last couple of weeks. Australia is finding welcome drought relief in the southeast states making for much improved planting conditions. However, Western Australia is still quite dry. And last but not least, Argentina is progressing with plantings, expecting to plant fewer acres this year because of the enticement of higher priced alternative crops.