Selling greets the new year
Well, the wheat market started the year with plenty of energy-unfortunately to the downside. Just prior to Christmas, break prices had a nice rally right up to major resistance levels which is where they stalled. The week between the holidays saw prices lose those gains and this week extend those losses as we broke through the December lows.
Much of the weakness can be attributed to the two major snow storms in late Dec., plus another one in early Jan. Even though they both caused a great deal of stress for livestock, the moisture fell in the most needed areas of the western Central Plains. The snows and rains that fell in the Plains are reportedly enough to all but eliminate the moisture deficits across most of the region. Even though the crop is still dormant, there will now be plenty of moisture available to the crop when it does break dormancy, a far cry from the situation last year and even this fall.
The improved moisture situation only added to the bearish situation wheat has found itself struggling with over the last couple of months. Even with world wheat stocks at record tight levels, the US has been unable to gain dominance in the export market, a feat that seemed all but a given just last fall.
The continued presence of the Black Sea region in major wheat sales is a harsh reminder that the competition is as fierce as ever, with few signs of relenting. This week was another reminder of just that when Egypt bought 160,000 MT of US soft wheat, but also bought another 210,000 MT of Russia and Kazakhstan wheat.
We expected to see slow export sales last week due to the holidays, but the actual figures were even lower than projected, with wheat sales a paltry 135,000 MT, compared to an estimate of 325,000- 425,000. So here we are, still floundering in the export arena in the last half of the marketing year, and now looking at the prospect of a large winter wheat crop for the next marketing year. If tight supplies are going to influence price action, it will have to happen soon.
USDA will release the long awaited winter wheat plantings estimate on Friday, Jan 12 with most estimates looking for a significant increase in hard red acres. The prospect now of excellent growing conditions once the crop breaks dormancy suggests plenty of wheat is coming our way this summer and thus creating another wave of bearish mentality. The report will also be the final production estimates for corn and beans; with wheat generally being a follower of corn, we could see some influence from those numbers as well.
The leadership of corn isn't helping as it appears to be breaking down technically; the double top formation with a large gap lower will be difficult to overcome. With record corn production expected next, the ethanol demand will be the key factor in determining price direction for corn in the coming months and thus for wheat.
Technically, look for support in KC March at Friday's low and the trough of 4.74, then the September low of 4.64 and then the August low of 4.615. Resistance should show at 4.90, then the swing low of 4.98, followed by the minor gap from 5.015- 5.02. In Chicago March, look for support at Friday's low of 4.625, then the trough of 4.605, followed by the swing low of 4.53 and then the breakout of 4.47. Resistance should show at the breakout of 4.785, followed by the major gap from 4.88- 4.945.