Wheat longs head for the exits
Disappointing reaction to the crop report, a little rain and rumors of Canadian imports were too much for an overbought wheat market to handle, and the doors were small as longs headed for the exits all at once.
The crop report did show a drop in expected spring wheat production, but not the drop in hard red winter wheat some had looked for as USDA left the 660 million bushels unchanged from last month. They also did not shave the harvested acres like many thought they would.
Despite bullish numbers for corn and beans and even a higher open for those two markets, the wheat market, which was called to open higher, couldn't follow suit and actually opened lower, creating a negative tone for the entire session on Wednesday. That negativity followed through to the next day where the selling got serious.
The big drop on Thursday was initiated by what was thought to be Canadian selling on the Minneapolis Grain Exchange, rumored to be hedging on sales to the United States. The rumors were of sales of spring wheat and durum, which would certainly help to ease the supply tightness here and stretch the winter wheat bushels as well.
Some showers did occur in the far northern plains and into Canada, an area where the rains might still be beneficial. The weather shows little sign of relenting, however, with 100+ temps forecast through the weekend into next week. All the rain in the world would do little to prevent crop damage with those extreme temperatures.
Nevertheless, in a washout trade the wheat market buckled and sped lower for two days, with what had been the strongest markets now leading the charge down. Minneapolis Sep retreated 41 cents from its high, KC Sep lost 37 cents and Chicago Sep down just 26 cents. Major unwinding of the quality wheat spreads against Chicago was also evident as the KC/Chicago spread fell 20 cents and Minn/Chicago gave up 9 cents. There was evidence of commercial pricing on the way down, and Friday offered some relief with a quiet and slightly higher session.
Even with the sharp drop in the futures, the fundamentals are little changed, particularly for hard red winter wheat, which will soon wrap up the remaining harvest in the north. A disastrous crop throughout the southern and central plains has left us with record tight stocks, and a huge job to do protecting domestic supplies. Spring wheat production is likely to continue declining as the crop tries to mature under intense heat.
News from the Southern Hemisphere isn't helping the supply situation, with continued dry conditions in both Argentina and Australia taking a toll on planted acres and production prospects. Both countries have recently announced that their planted areas will be down from earlier estimates, and the Australian Crop Forecasters group this week projected '06/07 wheat production at just 18 MMT, down 6.5 from last year and 3.5 less than USDA's estimate in this weekâ€™s report. USDA left Argentinaâ€™s expected production at 14.3 MMT, up 1.8 from last year.