Technical support breaks down
Worldwide food riots, wheat export suspensions in Ukraine, Kazakhstan and Argentina, skyrocketing rice prices with more export suspensions and even a threat of frost to the US central plains couldnâ€™t support the wheat complex last week. There were certainly rallies on these news events, but those rallies failed to hold, as has been the case for several weeks.
Despite those rallies being unable to hold, wheat had still been finding support at lows established on April 1. Until Friday, that is. Those lows were finally broken, and the close below that key support suggests that weâ€™ll probably soon see another dollar lower. The old crop bullish fundamentals are becoming less of an issue as the world watches the Northern Hemisphereâ€™s crop get growing with very few problems so far, and prepare for the likelihood of record production.
No doubt there will be plenty of pent up demand waiting for those new crop supplies, which will provide a support base even during harvest. It could be in the 8.00 â€“ 8.50 range of KC Dec, but if that breaks down, then weâ€™re probably looking at the 6.25 â€“ 7.25 range. And there is little argument that ending stocks for â€˜08/09 will still be relatively tight, but the bottom line is that those stocks are increasing notably. And there is no doubt that Australia and Argentina will be ready to play when itâ€™s their turn.
Yes, we are still very early in the growing season, but acreage is way up and moisture is ample in most major world production regions. Even the dry region of the US is shrinking as some rains finally fell in the northwest corner of the central plains. We did see a forecast for a heavy freeze next week in our central plains, but that longer range forecast lasted as long as most do, about half a day. There are still some potential weather bombs out there; we could get heat during flowering or another rainy harvest, but for now at least, here in the US and the other major regions of the world, the crop looks very good.
Itâ€™s always a good idea to keep an eye on outside markets, especially lately with their increased influence on the grain complex. We see the US dollar has had some impressive rallies recently; if the dollar starts trending higher, it would lower our export competitiveness. This may well come at a time when record world production is aggressively looking for a home and the Black Sea region will be at the forefront of the competition. Just something to think about.
Stats Canada released their plantings estimate Monday morning with bigger than expected wheat plantings. Total wheat plantings are forecast to increase 16.2% at 25.109 million acres. Spring wheat acres were up 9% at 16.584 million acres and durum up 22.5% at 5.9 million. After factoring in winterkill, winter wheat is expected to total 2.625 million acres, an increase of 65.4%. Those increases will come at the expense of barley which will be down 14.1% at 9.332 million acres, oats which will be down 17.1% at 4.485 million and corn for grain which will be lower by 12.6% at 3.005 acres. Canola will be just .5% higher at 14.805 million acres.