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Quick start - quiet finish

Wheat started the week with a jump, managed to hold most of those gains for the rest of the day on Monday, and then became very quiet along with most other markets as they tried to make their way through a holiday week without getting blown up.

The wheat complex has managed to hold the lows of the last few weeks, suggesting that a strong base of support has developed which I think should hold at least through December. The focus of the market has become the growing quality problems in Australia as persistent rains continue to delay harvest in the key region of northeast New South Wales and southern Queensland. While most of the crop had been harvested, much of what's left to cut in that region has been downgraded to feed status and at this point accounts for about 1 MMT out of the expected 20 MMT of total Australian production.

The result will likely be slightly less wheat exported out of Australia and another decline in world supplies of milling grade stocks. It will also result in an increase in feed wheat supplies, which will show up primarily in Chicago futures prices as they try to compete with corn prices. The quality wheat will likely be allocated primarily through the cash market with premiums and discounts. Historically, the best prices come in the spring when quality stocks are tightest and/or hardest to get into the pipeline as producers get busy in the fields.

Egypt bought 55 TMT of US soft red winter wheat last week, even though we weren't the lowest priced offer. This appears to be a result of the quality issue as the Black Sea is having increasing difficulty delivering the quality grades even for the less demanding buyers.

At the same time, the Black Sea continues to offer wheat at significant discounts as they try to aggressively move it. There continue to be reports of their need for cash as well as them running out of storage space for wheat after a bumper harvest; with winter coming quickly their need to move the wheat increases even more.

Other than too much rain in Australia, weather appears to be quite good as crops head into dormancy across the Northern Hemisphere. Very good crop growth and a slow cool down have allowed most regions to enter the dormant stage in good/excellent shape. In the US, the northern region of the central Plains have cooled enough for dormancy to set in while the southern regions still have slow crop growth. Moisture conditions have turned slightly dry in the western Plains, but will have little impact through the winter months.

World winter wheat plantings are expected to be down about 5% this fall, with total world production projected down about 35-40 MMT. Interestingly, India has projected that their winter wheat plantings would be up slightly, following a planting increase last year and a record crop. Improved inputs and access to irrigation is expected to pave the way for another big crop to start the harvest season for the Northern Hemisphere in March/April.

Technically, after the sharp rally early in the week, wheat volume simply faded and prices coasted to quietly finish the week. Wheat's fundamental factors for the most part are well known - except for the outside financial markets which will continue to exert unusual influence on these grain markets. For the next couple of months, I look for the equity and financial markets to be the overriding factor in price direction, while wheat's trading range of the last several weeks should contain the rallies and support the breaks.

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.

Wheat started the week with a jump, managed to hold most of those gains for the rest of the day on Monday, and then became very quiet along with most other markets as they tried to make their way through a holiday week without getting blown up.

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