Wheat grinds slowly lower
Wheat markets chopped around in the early part of the week, only to find selling pressure late in the week, partly on another dismal export sales report, but also as soybeans and corn began to be pulled lower on improving weather in Argentina.
World wheat prices have rallied over the last few weeks as quality supplies out of the Black Sea become tighter, with those prices essentially rising to where US wheat prices become competitive again. The US has managed to participate in a few sales to Egypt, despite the heavy competition from the Black Sea and Europe. However, last weekâ€™s export sales were a paltry 23.5 TMT after factoring in a 350 TMT cancellation from Nigeria. What we donâ€™t need are cancellations now that weâ€™re finally getting a foothold in the export market.
Argentina has added to the confusion in the export arena. First they announce they will release 1.2 MMT of wheat for sale, then a week later announce theyâ€™re cutting off exports, then they clarify by saying only â€˜newâ€™ sales will be halted. Either way, Brazil will need to look elsewhere for supplies and the US or Canada will be ready for that business. The US has already had three weeks of small sales to Brazil and this week it was reported that Brazil had already switched some Argentine bookings over to Canada.
However, itâ€™s been very difficult for wheat prices to rally above these trading range highs and the market continues to falter when it reaches those levels. This week was no exception; with adequate supplies of milling stocks in the world, and more than adequate supplies of feed grains, it will continue to be very hard for wheat prices to breach those key resistance levels unless we get some production problems in the spring.
Now that February is upon us, we also have to be cautious of the seasonal tendency for wheat prices to move lower through this month, which is a very strong tendency as farmer sales usually are heavy during this month. Once we get into March, however, the market will shift its focus to a new growing season.
After last fallâ€™s great start to this wheat crop, weather was not friendly as the crop was quickly forced into dormancy and has since experienced a great deal of dryness. We could easily see some fireworks this spring with this new wheat crop, but from the perspective of a long term bear market, I still believe that rallies need to be sold. If we get a weather driven rally this spring, it should be an excellent selling opportunity; and would most likely come by late April.
The International Grains Council continues to increase 2008 wheat production estimates, with their report this month showing total world wheat production at 687 MMT, up 4 MMT from their last estimate and 5 MMT higher than USDAâ€™s latest estimate. They expect 2009 world wheat production to be down by 37 MMT to 650 MMT, which would still be up 40 MMT from 2007 and the second largest crop in history after last yearâ€™s record crop.