Wheat holds supports
Wheat spent the week trying to hold last week's lows in very choppy price action. An early weak bounce was followed by a late week sell-off that did take out last week's lows by just a few cents, only to have the buyers step in again and support the market. Indeed, with all of the turmoil in the financial markets this week, it was pretty impressive just to see wheat hold its own and brush off the outside pressure.
There weren't a lack of reasons to go lower, as the dollar continued to push into new 7-month highs, we missed out on more key export business and corn and beans continued their slides. Both Egypt and Iraq made large purchases, with most of it going to the Black Sea. The US only got a 100,000 MT sale to Iraq out of a total of 700,000; and another goose egg with Egypt as they bought 240,000, again most of that going to the Black Sea.
It seems to me that if wheat was intent on taking out the October lows, then this week offered more than enough opportunity to do it. But, for whatever reason, wheat has been holding just above those key lows and appears to have plenty of buying support down here. As we move through the month of February, the seasonal tendency is for weakness during the first half of the month. Generally, though, as we get into late February/early March, the market's focus shifts to new crop and weather. While moisture will likely not be a problem here in the US, we could still see some weather events nonetheless and the sharply reduced acreage would only magnify a weather issue.
The market will also be watching all of the Northern Hemisphere's wheat areas, not the least of which is the Black Sea region which has already had its share of problems. A dry planting season and an early cold snap with no snow cover have already forced Ukraine to lower yield estimates. There are reports of developing dryness in China's main winter wheat region. You might recall that last November they were cloud seeding over some of their winter wheat areas. China is the world's biggest producer and consumer of wheat, so obviously any weather issues there will be very important. India is the world's second largest consumer of wheat, but their production prospects look good as they are on track to cut their third record crop in a row.
Even with large carryover world stocks, weather issues here in the US or any other major producer will certainly have a positive impact on prices. Most regions of the world saw steady or slightly higher winter wheat plantings, except here in the US where acreage is down 14%; and most planted into good conditions. My thoughts are that weather problems will be most intensely felt if they happen here in the US, because of the already lower production prospects.
Either way, I look for wheat to carve out a winter low in this price area. The market may try to jab the October low to see what kind of stops it can flush out. But ultimately, I look for prices to rally into the spring and early part of the growing season as the market builds in some weather premium and assesses the early production prospects.