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Wheat looking for direction

Wheat found very little traction this week. An outside day lower on Monday set the tone for much of the week's price action. We did a get a nice bump on Wednesday, but after Thursday’s pathetic export sales number, wheat just ground its way lower to finish the week at the lows of the trading range of the last three weeks, which is just slightly above the early Feb lows.

It's been a long and painful export season, with the US struggling to gain any kind of leverage against the other major exporters. Last week's sales at 101 TMT were the lowest in 40 years, hammering home the difficulty we face in this extremely competitive year. Once again, we've fallen behind in the normal pace needed to meet USDA's projections, even after they reduced the export expectations in January's crop report. It's likely that we'll see yet another reduction in export projections before the end of the marketing year.

Whether that comes in this Wednesday's crop report remains to be seen. The trade is waiting for this crop report before picking up the price action mostly to see if USDA will increase US corn production. It appears that yields for winter harvested corn are better than expected, and some are anticipating that those bushels will show up in this month's production figures. They are also expecting an increase in corn and soybean production out of South America, where Brazil's soy harvest is in full swing now that sunny skies have returned.

As winter wheat begins to break dormancy in the southern and central Plains, we'll get a good look at crop conditions. Kansas states that 4% of their wheat has broken dormancy. So far the monthly crop ratings have shown hard red winter wheat staying in mostly good shape through the winter. Kansas good/excellent ratings dropped 3% but are still going strong at 53%. The rest of the Plains states are also in good shape. It's the Midwest that holds the most uncertainty, with Illinois dropping a full 10% to 28% good/excellent.

Many of those Midwest acres were planted late and into muddy conditions, and could easily get torn out and replaced with other crops. This helps explain why Chicago futures have held their values so well against KC and Minn. The prospect of a significant drop in soft red production compared to large carryover hard red winter and spring wheat stocks have driven Chicago/Minn futures to almost even money. That likely won't change much until we get a signal that soft red acres will increase. An early planting season for corn and beans would be the first such signal, as it would suggest an early harvest and thus a longer and more desirable soft red winter wheat planting window.

So far, most of the major Northern Hemisphere production regions are in the early stages of breaking dormancy. Winter stress has been minimal, with Ukraine and Russia being the more notable stress regions. Russia is reporting that they expect 6-10% winter kill of their fall planted crops, up about 5% from last year and a bit of a surprise considering they didn’t seem to have much winter stress. Ukraine planted into dry conditions, had an early winter cold snap and then some ice cover so it will be interesting to see how their wheat has fared. Europe has had plenty of moisture and snow cover, with almost no winter stress. China had some dryness issues right after planting last fall, but has since had some moisture. There are dry pockets in their winter wheat country, and rain would be welcomed.

It's early in the growing season, we have huge carry-over stocks here in the US and worldwide and winter wheat plantings are down significantly here in the US. It's a pretty mixed set of fundamentals to start this new production season and the next two months will be critical. Technically, prices have struggled to find a direction but look poised to test Feb lows. I continue to think that those lows will hold and that this month-long sideways pattern will provide a strong base of support for a significant spring rally.

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 found very little traction this week. An outside day lower on Monday set the tone for much of the week's price action. We did a get a nice bump on Wednesday, but after Thursday’s pathetic export sales number, wheat just ground its way lower to finish the week at the lows of the trading range of the last three weeks, which is just slightly above the early Feb lows.

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