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Wheat holding support

Agriculture.com Staff 01/24/2006 @ 2:33pm

Wheat markets experienced a very choppy week, falling sharply early in the week on news that we'd been snubbed again by Egypt and on concerns that our rallies quickly price us out of export markets. But, after testing key support areas, Kansas City regained its leadership role and rallied strong, nearing its swing highs from the previous week.

While the rallies do, indeed, bump us out of some export markets, the fundamentals are little changed for the wheat complex. We will have tight supplies of hard red winter at least until the June harvest, and if weather doesn't improve in the southern plains, supplies will become even tighter. The warm weather over the last several weeks would have TX and OK wheat growing if it had moisture. And it does have the KS crop growing well ahead of schedule, making it susceptible to quick drops in temperatures.

Therein lies the dilemma for the wheat complex; hard red is by far the strongest of the three markets, with Chicago and Minneapolis tagging behind. Soft red winter wheat has plenty of stocks, and with the increase in acres and good crop conditions so far, it looks like those supplies will increase even further. There's no shortage of lower quality wheat in the U.S. or in the world.

Quality is what will pull prices higher and because the shortage is winter wheat, the KC futures will actually participate in most of that rally, instead of the basis doing most of the work as is usually the case for spring wheat quality shortages.

And therein lies the opportunity for wheat traders; KC has been gaining on Chicago for several months and fundamentals suggest it will continue to do so. I would expect that even in downturns, like we typically see through February, Chicago will still lose to KC since it is the weaker market.

In foreign news, Iraq stepped up recently for U.S. wheat. It is likely that we will become their primary provider in light of Australia's admission that they did participate in the Iraqi oil-for-food kickback scandal. This only adds to the bullishness of the KC market, at least near term.

Russia and Ukraine are experiencing the coldest winter since 1978/79, with temps reaching -50 F this past week. Most of the wheat acres had a blanket of snow on them, but we’ll have to wait until spring to know if any winter-kill damage has occurred. The biggest problem for them is that their wheat was planted into very dry conditions and did not get a good stand before entering dormancy, and thus is more vulnerable to harsh weather.

This publication is strictly the opinion of its writer and is intended solely for informative purposes. It is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way guaranteed. Futures and options trading always involve risk of loss.

Wheat markets experienced a very choppy week, falling sharply early in the week on news that we'd been snubbed again by Egypt and on concerns that our rallies quickly price us out of export markets. But, after testing key support areas, Kansas City regained its leadership role and rallied strong, nearing its swing highs from the previous week.

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