Rally stalls at resistance
Wheat markets spent much of the week in a positive mode, bouncing off of the contract lows established last week. A couple strong rally days quickly took prices to pre-report levels and up to the very strong resistance of the 40-day moving average, which once again managed to stall the rally.
USDA released their monthly supply/demand report on Friday; the trade was'â€™t expecting any major adjustments for wheat but there were some surprises in the report. Of particular interest for wheat was the increase in export projections. After all of these months of struggling to compete in the export arena and the numerous times USDA had lowered their estimates, now here we see them take the projections back up as we head into the last two months of the marketing year.
While exports had been holding steady, they were'â€™t ahead of the pace of projections, but apparently USDA sees them picking up in the next couple of months. While the crop report was positive and futures reacted strongly initially, the board couldn't hold the gains and retraced after testing the 40-day moving average.
Cash markets are showing strength despite the weaker futures, especially the higher protein spring wheat at the PNW. Just in the last week 15% pro spring wheat basis surged 35 cents, and hi-pro values have rallied $1.75 since harvest. The low protein crop from last year is finally spurring higher quality prices higher, basically following the normal seasonal time window for these types of year. Typically, high pro winters will tend to peak in early May, and high pro spring tend to top in early June. It would seem to me that the market will follow this normal seasonal tendency.
That said, unless the northern Plains runs into production problems the odds are very high that summer price action will be weak as the large crop from last year is forced into the market to make room for this year's crop. This is a normal reaction in bear markets, and usually happens right about the same time that the US harvest is under way in the central Plains. Production problems in the Midwest could change the price action to positive if corn and beans move higher.
But so far, wheat prospects look quite good in the southern and central Plains. Crop condition ratings continue to be very impressive for most of hard red winter wheat country, with Kansas ratings at 69% good/excellent and the other states not far behind. The Midwest is more mixed with Ohio and Indiana looking good but Illinois still looking poor.
Other Northern Hemisphere regions also show a mix of production possibilities. Most of Europe looks very good after a mild winter and having abundant moisture. Ukraine and Russia both are reporting higher than normal winter kill and a slow start this spring due to cold temps. China is also experiencing severe drought in the southern reaches of their winter wheat area; it's not expected to make much of a dent in total production for wheat however, since it's a low yielding region.