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Stuck in a range- for now

Wheat traded in a choppy, narrow trading range for much of the week. Pressure by those convinced there's little hope for wheat rallies because of slow exports and a large new crop coming was offset by those who think our exports are picking up and that corn will soon offer a new round of support. Both sides have legitimate arguments, which is why we only traded in a choppy, narrow range.

When we look at the bearish side, we see the market struggling to stand on its own feet, still preferring to take the leadership from corn, which has offered very little in the last month. Wheat exports are still 6% behind the pace needed to reach USDA's projections. Seasonally, the month of February can be brutal for the grains and is lurking in the minds of all traders. Moisture conditions also look very good for wheat once it breaks dormancy.

Taking a look at the positive side for wheat, there are those who argue that because of recent successful sales to Egypt and Iraq that the US has reached a support level where we are competitive in the world market. They would also argue that while corn may be stuck in a trading range, hovering at the 4.00 mark is hardly a sign of weakness, and if corn resumes its uptrend, wheat will surely follow. We're already seeing a significant amount of wheat feeding, and for those who've forgotten, wheat stocks are still very tight-here in the US and the world.

The cold weather has both sides talking as well, with bulls suggesting that extended ice coverage of wheat will produce at least some winter-kill. Bears only look at it as more moisture once the crop starts growing.

Canada added some fuel for the bulls last week with their inventory report showing much less grain on hand than the trade expected. All wheat on hand was 22.3 MMT, down 1.6% from last year (mostly from durum). Barley stocks at 7.6 MMT was down 21% from last year and oats at 2.3 MMT was down 17% on a year ago.

India made some headlines last week with their wheat crop. For the second straight year, what started out looking like a bumper crop is running into some problems from hot and dry conditions. Looking back, it was India that got the ball rolling with the run to 10-year highs last year. Their late decline in crop conditions suddenly forced them into the world market with major purchases and jump started a long term wheat rally.

The US followed right behind with a crop disaster of its own in hard red winter wheat. Australia was not to be outdone and followed with their worst crop ever. Yes, there were some major production problems last year, and world stocks are record tight to show for it.

None of this is news to the market, but as we head into the final quarter of the marketing year when stocks will be their tightest and cash movement tends to decline anyway, we could still see the effects from last year's production problems. That's the demand side which we should not forget about, even though it's been a painful year so far.

Supply is up for grabs; more winter wheat acres and a solid moisture base, but will spring wheat be able to protect its acreage base from corn? There is a very real possibility that spring wheat acres could see a significant drop, which would change the wheat dynamics quickly.

I would expect wheat to find good support near last week's lows as that price level seems to generate export business. I expect that corn will work higher out of its trading range and ultimately provide support for wheat. And I expect to see a notable drop in spring wheat acres that will also provide a support base for wheat. Yes, good weather in the spring will likely pressure winter wheat prices, but I think that corn and spring wheat will be as big of players in price action as will weather in the plains.

This publication is strictly the opinion of its writer and is intended solely for informative purposes. It is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way guaranteed. Futures and options trading always involve risk of loss.

Wheat traded in a choppy, narrow trading range for much of the week. Pressure by those convinced there's little hope for wheat rallies because of slow exports and a large new crop coming was offset by those who think our exports are picking up and that corn will soon offer a new round of support. Both sides have legitimate arguments, which is why we only traded in a choppy, narrow range.

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