Wheat drifts lower
Wheat markets continued to erode, despite a few attempts to move higher along with very choppy price action in equity markets. There does appear to be a growing separation of the grain complex from the equity markets, which is most welcome no doubt.
Nevertheless, the trend is still overwhelmingly lower as wheat touched 16-month lows this week; rallies have been anemic at best that have barely been able to test even minor resistance levels. Shortly, we can expect another round of pressure from the Southern Hemisphere's harvest, primarily from Australia. While even with a less than average crop, they be looking to regain lost markets after two years of very poor production.
Australia continues to see their production prospects decline as rains simply have not been enough in many key growing areas. Some regions have excellent prospects, but they're not enough to offset the declines in most of the country. To be sure, it's a major disappointment for many Australian producers, who started the growing season with great potential. That said, it's still much better than the bust the country has experienced the last two years. Their harvest will get into full swing in just a few weeks, and will likely add to the bearish pressure of the wheat complex.
Argentina did receive some late rains that likely helped in some of the southern regions, but crops in the north were too far along. Argentina, too, is looking at much lower than normal production, about 25% less than last year at 12 MMT. Their production losses are not having much, if any, influence in price action.
Taking a look at the Northern Hemisphere, planting conditions appear to be good, if not very good, in most major growing regions. Moisture has been ample and planting has progressed smoothly. Here in the US, winter wheat plantings are at their normal pace and moisture conditions have vastly improved, especially for the western Plains which is now mostly free of any drought status. That's the first time in a few years we've been able to say that. Plantings may have been delayed in a few areas, but crop conditions generally look great and should head into dormancy in very good condition.
We see that both Russian and Chinese governments are aggressively buying domestic wheat to support prices and to encourage winter wheat planting. Both plan to put the wheat into government reserves. While these actions may be price supportive in the short term, the growing stocks will serve to keep a lid on prices longer term. China is also increasing the base support price for wheat. China just harvested their 5th record grain crop in a row; one can certainly see the need to support prices but one also has to wonder why they would encourage even more production. Clearly, both Russia and China have made tremendous strides in improving grain production and distribution and their presence in world markets is a huge determinant in setting world prices. Their incentive programs for even greater production will certainly have an impact on other major world producers.