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Rallies are not holding

The wheat market had plenty of reasons to move higher this week with a bullish crop report and very strong export sales. And it actually did rally on those reports, but each rally failed as they were met with persistent selling that pushed prices back down to the swing lows of April 1.

The supply/demand report offered a surprise by keeping ending stocks unchanged as a decrease in feed use offset an increase in exports of 50 million each. The trade had been expecting an increase in ending stocks after seeing higher than expected quarterly stocks, so the news was a bullish surprise. The next day offered more bullish news with export sales at a healthy 763 TMT, much higher than trade estimates with almost half of those sales in new crop.

And weather continues to be a notable factor in price action. The dry western Plains were forecast to receive much needed rains, but were mostly missed once again. There was some measurable rain in the northwest central Plains, but the dry areas to the south did not get enough to make much of a difference. Crop condition ratings improved slightly, and I would expect they'll continue to improve in most states.

Cold weather became an item of note with forecasts calling for freezing temps in the central Plains, but most traders had little concern about potential damage. It was this time last year killing frost hit the southern Plains and turned a bin buster crop into a wreck. Little wonder why the trade is respecting even the slightest hint of frost this year. Weekend temps did reach below freezing as far south as Oklahoma, but it doesn't look like any serious damage was done over the weekend. Temps are expected to warm up and most likely, freeze scares are behind us for this season.

But the bottom line to all of this bullish news this week is why couldn't wheat hold a rally? It even had support from the row crops- at least until Friday, but just couldn't find the staying power to hold its gains. It would appear that wheat is showing its hand, as one has to question a market that can't respond to bullish news.

I think this week’s price action confirms my take on this market that we’ve indeed put in long term tops and are in a long term downtrend. The trade is looking at a huge, record world wheat crop this year that has started its growing season with very few problems. The major players all look good except for the US, and our problem area, while not small, is manageable; especially when the rest of the plains and Midwest look very good.

China got much needed rains right over their key growing region in the North China Plain; the Black Sea is breaking dormancy with a good moisture profile and lots of acres. They’re actually talking some smack about out-exporting the US in ‘08/09. Frankly, it wouldn’t surprise me and it is only a matter of time before they do as they’ve been very progressive with grain production, storage and transportation/exporting. Of course, the Northern Hemisphere’s growing season is young and we could still get significant weather issues, but for now the trade is looking at few problems and lots of tonnage.

It is important to note that spring wheat could be a much different story. Much of the northern plains are still very dry and the spring wheat crop could have its own set of troubles that would support that market. Even at the outset, it will be difficult to get enough acres to comfortably replenish spring wheat stocks, so a shaky start to the growing season could be quite supportive for the Minneapolis market compared to KC and Chicago.

I’ve no doubt that plenty of fireworks are still in store for this market, and all the grains for that matter. We can’t forget that if problems develop for corn and beans during the summer, then wheat prices will certainly be affected as well.

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.

The wheat market had plenty of reasons to move higher this week with a bullish crop report and very strong export sales. And it actually did rally on those reports, but each rally failed as they were met with persistent selling that pushed prices back down to the swing lows of April 1.

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