Slow, steady wheat trade
It was a typical Christmas holiday week, with thin trade volume and choppy price action. Wheat prices managed to rally back to the breakout level; in fact, it tested that old 50% level three days of the four days that we traded. But, the market just couldn't breach that increasingly tough resistance. On the plus side, the low from the previous week still held and thus we just traded in a 16-cent range for the week.
Weather was a player this week as well, as corn and soybeans were supported by transportation disruptions and, yes, still harvest delays for corn. Stronger basis levels for corn in particular supported corn futures and had some spillover support for wheat as well. But the weather also kept wheat subdued as more moisture and protective snow cover fell on the prairies.
Export sales were a paltry 221 TMT, far below the range of estimates of 350-550 TMT. Poor sales numbers are much too common, continuing to speak to the plentiful world supplies, intense export competition and the sudden strength in the US dollar. It is interesting to note the huge export sales for US corn, which at 1.6 MMT, were double the high end of estimates. The strong demand base for corn will add some support to wheat prices.
Argentina is reporting to have received plentiful rains throughout the past week, which has certainly helped their summer crops, but is delaying the remaining winter wheat harvest. There are growing concerns of quality damage because of the rains received so far, coupled with rains that are forecast through this week as well.
Weather issues are also a growing concern in the Ukraine. After planting into dry conditions, wheat crops were poorly established as they went into dormancy. Recent warm temps have eliminated much of their snow cover, and forecasts call for an extreme cold snap for next week. A fresh cover of snow will be very important before that cold comes in. Already, Ukraine is lowering their winter wheat production estimates by about 10% from last year, from 20.8 MMT in 2009 to 18.7 MMT for 2010, citing poor planting conditions and spotty emergence.
We also know that Russia planted into similar conditions and that their winter wheat crop was also poorly established before heading into dormancy. These two countries make up the majority of the Black Sea region, which has become a major force in world wheat production and the leader in world exports, effectively setting world price for the last few years.
Here in the US, which used to be the world's largest exporter, we're already projecting lower winter wheat plantings and will likely see a notable drop in production. Now we're looking at the world's largest exporting region also likely to see a drop in wheat production. This is certainly enough early evidence to make the bears pause and re-assess their negative attitudes. The market has known for months the supply situation for 2009, as well as the demand and export competition structure. That has long been factored into the price structure.