Prices chop in a range
Price action in wheat last week was choppy to say the least. Quick updrafts with no follow through only to be offset by just as quick of a downdraft with yet again no follow through. Content to chop around in a trading range was actually a win, considering corn broke into new contract lows for the week and soybeans set 3-month lows. Rumors of an Ag fund being forced to liquidate also added to the downward pressure, even though it was not confirmed.
The weakness in the dollar and strength in the Dow were reasons to support the market, but the rallies just couldn't be sustained as spillover selling from corn and beans were too much for the wheat complex. We did see some spread unwinding with funds selling soybeans and buying wheat, which would fit with the rumor of an Ag fund liquidating, but once the spreads were liquidated, the buying support for wheat quickly faded as well.
The liquidating in the row crops has been persistent as weather has been near ideal as we enter the key pollination stages. The announcement out of China that they would be releasing government reserves of wheat, corn, soybeans and rice added bearish momentum, even if their offered prices were well above domestic prices. Regardless if Chinese millers and crushers would actually be buying the government stocks, the market just didn't like the news and it carried prices lower.
Russia's winter wheat production estimate rose to 60 MMT, from the recent forecast of 59 MMT as their near ideal growing season comes to an end. Unfortunately, the spring wheat is not faring as well there or in the Ukraine, where drought has become firmly entrenched and yields are reportedly declining quickly along with losing acres entirely. The good news out of Ukraine, however, is that their winter wheat crop is expected to grade 35% milling quality, compared to last year's low 29%.
Harvest continues in the central plains, with a few rain delays that have decreased test weights. However, protein content is improving as the harvest moves into South Dakota. Protein premiums were weaker in the southern/central plains as supplies of higher protein old crop spring wheat began to fill the pipeline. Producers across the northern plains are moving old crop stocks to make room for new crop, adding to the harvest pressure. This is often referred to as the "double harvest."
Protein is likely going to continue to be a significant part of price this marketing year. We had a less than normal protein crop out of the southern/central plains this year. When we look at the very wet growing season across much of spring wheat country, North Dakota in particular, odds are good that it will be difficult to get a normal protein spring wheat crop as well.
We'll soon know, of course; but if indeed the spring wheat protein comes in low, one could expect protein premiums to see a significant rally during the harvest, much like winter wheat did. Typically, in low pro years, we see premiums surge at harvest time, and then taper off after millers have secured needs, followed by another surge (usually stronger) into late spring when stocks are tightest. This is just something to keep in the backs of our minds as we begin the spring wheat harvest in just a few weeks.