Wheat markets continued to work their way lower, as is typical during the month of February. With little outside help from corn or soybeans, and financial markets continuing their implosion, wheat found few reasons to muster any rallies or scare off many short positions. Fortunately, the technical supports are holding quite well as we near the end of the seasonal pressure.
Weather is quickly becoming the focus of the market and one of the few bullish factors at the moment. Drought in Texas and southern Oklahoma is not subsiding and crops there will need rains very soon as their growing season gets under way. Crop condition ratings reported by Texas have shown for weeks terrible conditions with the latest showing 64% poor/very poor. The western central plains into the panhandles are also dry, but not as bad and have a bit more time.
China's wheat areas continue to be dry as well, with their growing season starting in just a couple of weeks. While they are suggesting about a 5% drop in yields due to drought, they also say that they will not be importing large amounts of wheat as their carryover stocks are quite large.
Russia seems to always make the news, one way or the other. We don't need to be reminded of the inroads they've made for their export program, and lately they've added a big customer to their list. Brazil has long been one of the world's biggest importers, but rarely makes a big splash in the market because Argentina usually fills their needs. With Argentina's drought this year, Brazil is once again looking outside the Mercosur bloc for imports, with Canada and the U.S. being the only countries that had been granted approval for exports -- until now.
Russia has been lobbying hard to access that Brazilian market and it looks like their efforts have paid off. A Brazilian team of government ag officials recently visited Russia and tested their wheat. Apparently having been satisfied with the condition and quality, they formally recommended that their government allow for imports of Russian wheat. While Brazil reported that they will likely not import large quantities of Russian wheat this year as they want hard wheat and most of Russia's is soft, it obviously opens a big door of opportunity for Russia down the road.
India is nearing the end of their growing season and production looks to be good at 76.5 MMT, down about 2 MMT from last year. To make room for another big crop, they are actually talking about exporting about 1 MMT, likely to nearby countries.
Australia continues to fine tune their production estimates, raising them slightly to 21.4 MMT, up 1.3 over USDA's latest estimate. European prices have slipped recently as they feel the pressure from increasing exports out of Australia along with the continued Russian export pressure.
The technical picture is becoming very interesting. Wheat prices had dropped back down to the old trading range low and held for a few days. However, on Thursday, prices jabbed that low -- but didn't stay down and finished the day almost unchanged. Friday also had lower trade throughout the day only to find buying on its close as well. When we look at the weekly charts, prices have dropped into key support and are holding well so far.