Signs of life
Wheat found a spark of life late in the week with a surge of buying that took it almost 50 cents off the swing low of just two days earlier. After several days of basically sideways trading, it looks like wheat may have carved out some sort of low formation. What it can do from here on the upside remains to be seen, but seasonal patterns would suggest at least some upside for possibly a couple of weeks.
Iran got some of the credit for Friday's rally when it was reported that they likely have already purchased 3 MMT of the expected 5 MMT of milling wheat they would have to import this year. The US may have garnered between 300-500 TMT of that deal, while Canada is said to have secured 1.5 MMT, with Russia and the EU getting about 500 each.
While wheat can certainly bounce from its oversold technical situation, I continue to believe that unless fundamentals have a sudden shift, the longer term trend is down and rallies will be difficult to sustain in the bigger picture. Those fundamental changes would likely come from either harvest issues in Europe or production issues in the Southern Hemisphere.
Harvest ramped up in Europe this week, with weather conditions mostly favorable. Eastern Europe and the western CIS report too much moisture and minor quality problems this week, but the weather is forecast to improve. If the weather stays wet, then weâ€™ll likely see prices supported due to quality concerns in the key CIS region.
The market is also watching the spring wheat crop run into hot and dry conditions across a growing section of the northern Plains and Canadian prairie. The spring wheat tour kicks off next week, and they will surely see a mixture of conditions. Eastern North Dakota vs. western North Dakota and eastern Montana will have much different crop conditions. Much of the heat and dryness has been centered right over durum country as well.
But spring wheat rarely drives the market, especially when there are plentiful stocks of winter wheat, which is certainly the case this year. Ending stocks will be much more comfortable this year, which may cause USDA to abandon their CRP early-out initiatives. After running into legal issues over the opening of 25 million acres for haying and grazing because they failed to do an environmental impact study, pursuing an early-out program quickly went to the back burner when it looked like grain stocks wouldnâ€™t be so tight. It may be that the market itself will have to attract the acres when the contracts expire, something that could underpin prices in the bigger picture.
And speaking of government intervention, the CFTC will hold hearings next week with the Agricultural Advisory Committee regarding the failure of the CBOT July futures contract to converge with the cash market at its expiration. Theyâ€™re looking for solutions, and any solution won't be bullish since they have no control over cash prices, which were 1.50- 2.00 lower than the futures. If prices are to converge, futures will be heading lower.