Wheat gets key reversals
Friday's day of volatility in the wheat complex capped off a week of prices inching back toward their contract highs after a slight pullback.
The plantings report gave us a sharply higher open into new contract highs and fresh 11-year highs, but wheat prices collapsed when corn couldn't hold minor gains after a lower opening, and long liquidation became the feature.
The plantings report showed spring wheat acres at 13.144 million acres, 755,000 less than the average trade estimate and down 1.755 from last year. Durum was higher than last year by 355,000 acres at 2.225 million. While the lower spring wheat acres alone took the market by surprise, the market's reaction was compounded by the unexpected drop in Canada's spring wheat acreage, which they reported this week to be 21.7 million acres, their lowest in 37 years.
While this plantings report was a shocker to the market, the long-term plantings story is far from over. Next year promises to be just as intriguing as the shift to corn or other bio-fuel acres will likely continue, and wheat acres will be caught in the crossfire, particularly spring wheat as we saw in the US and Canada this year.
In addition to lower spring wheat acres for both the US and Canada, the weather looks to bring some intense heat to the northern plains, threatening what so far has been a stellar crop. The prospect of a further loss of quality wheat just when the market needs it so much catapulted wheat sharply higher on Friday's open, with Minneapolis leading the way as it touched limit up. But the weakness in corn was too much for wheat, despite even soybeans being limit up, and wheat began to falter as corn turned lower. Then the long liquidation took over as Chicago melted down late in the session.
Granted, Friday's action should make long-term bulls nervous, but the fundamental picture remains quite solid. In addition to supply issues, the demand base for wheat is playing an important role in keeping the fundamentals solid as well. Even with wheat prices above $6, we continue to see strong export activity week to week, much above trade estimates. The lack of harvest wheat in the pipeline has caught some exporters short and their aggressive buying on pullbacks has underpinned the cash market, which has spilled over as support to futures as well.
As the central Plains' harvest moves into areas with better yields and quality, the market will likely see more hedge pressure. However, with the demand for spring wheat ramped up and supplies under question, it's unlikely that wheat will be able to break very far until the spring wheat harvest is well under way. This wheat complex is very super-charged and pullbacks have been well supported, despite the meltdown in corn.
However, the technical picture has turned questionable with huge key reversals in wheat and with corn continuing its massive long liquidation. Wheat is notorious for price spikes and Friday's action certainly has that look. Friday's high will become a significant resistance point for wheat and I would expect that level to contain the market for the near term.