Wheat fends off weak financials
The wheat complex showed some strength this week after testing key support levels early and then rallying strong into late Friday. Even despite continued weakness in the Dow, prices managed to move and hold above the first resistance level, which was the two-week trading range low established in the last half of February.
The dry conditions in the far southern Plains certainly have something to do with traders not wanting to get overextended on the short side, particularly when we see the large funds already with huge net short positions. To press the downside from here as we're just entering the growing season, with Texas already in serious trouble, seems a bit too risky, even if world supplies are more than adequate and another growing season is about to begin.
Speaking of growing seasons, the Northern Hemisphere's is quickly approaching and that should give us many more interesting things to talk about, rather than the steady drumbeat of the Black Sea region hammering the export market. That said, it doesn't mean they're going away, it just means we can focus on other things at least for awhile.
China was offering some interesting news for awhile when they hit the panic button about drought just two weeks ago. How quickly things change, however, as last week's snow/rain event provided a blanket of moisture over their key winter wheat regions, and suddenly all is well with them. We'll keep an eye on their crop anyway, just in case. Russia reported this week that their wheat crop looks very good, with the condition rating above the 5-year average.
So, to date, the only trouble spot is right here in the US, and it does warrant serious attention with much above normal temps, high winds, and very dry conditions across the region that needs moisture most at the moment. Damage to the Texas crop and some of Oklahoma has already occurred; many acres are already being abandoned in Texas. Most of Kansas and north into Nebraska and South Dakota are in pretty good shape for moisture, so it's not the entire region we're concerned about. Also worth noting is the potential for frost, with cold temps showing up in the long range forecast.
Brazil was back in the news this week, again talking about their impending purchases from outside the Mercosur Bloc. After a Brazilian trade team recently visited Russia, it was announced that Brazil would now allow imports of Russian wheat. This week, Brazil offered some clarification; yes, their market was now open to Russian wheat, but Brazil wants hard wheat and Russia only grows soft wheat. In addition, apparently the real reason the trade team was there in the first place was to negotiate opening the Russian market to Brazilian pork. It looks like wheat imports were part of the 'negotiating', even if they might not really happen.
Technically, wheat managed to get past the first resistance levels, and now should aim for the late Feb swing highs. In KC May futures, look for the first resistance at 5.80, just above Friday's high; the next resistance shows at 5.97 and then 6.15. Support shows at 5.70, then 5.53 and then the major swing low of 5.41. For Chicago May futures, look for resistance in the 5.45 - 5.52 range, then the swing high of 5.90. Look for support at 5.13, then the swing low of 4.98.