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 weekâ€™s price action confirms my take on this market that weâ€™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. Theyâ€™re actually talking some smack about out-exporting the US in â€˜08/09. Frankly, it wouldnâ€™t surprise me and it is only a matter of time before they do as theyâ€™ve been very progressive with grain production, storage and transportation/exporting. Of course, the Northern Hemisphereâ€™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.