Wheat paces sideways
Wheat markets looked like they did a lot of nothing last week, barely moving sideways in a very narrow trading range and ending the week about unchanged. While price action didn't give us much to talk about, the mere fact that wheat held at the contract lows as weâ€™re heading into harvest did get some attention.
While much of May has been spent in a downtrend, the bearish momentum appears to be waning in the last week or so. Spillover support from corn has added an element of support to wheat and has plenty of people talking that wheat could see more buyers step up if we get more weakness. Chinese corn futures have steadily moved higher as dry conditions in their major corn producing region have caused planting delays. The subsequent purchases of US corn by China, with rumors of much more in the works, have created a great deal of buying interest in the corn complex.
In the last few weeks, we've also heard talk of southern Plains cattle yards looking at using wheat in their rations, which makes corn rallies all that more important to wheat from a price competitive standpoint.
On the flip side, harvest is looming and will likely be adding significant pressure to wheat, unless the rains keep coming. The US dollar continues to push higher with the world economic stress and uncertainty and that will continue to subdue exports, especially against the Europeans who have seen their currency sharply lower against the dollar and their exports rise much higher than expected as a result.
While we are gearing up for the start of winter wheat harvest here in the US, and feeling comfortable with yield prospects, the rest of the Northern Hemisphere is still prone to weather issues. Europe jumped onto the radar recently as France, the EU's largest wheat producer, has experienced very hot and dry conditions and is already lowering yield prospects. Eastern Europe still looks generally good, but as we move further east into the spring wheat areas of Russia and Kazakhstan, we see very dry conditions there as well. China has also seen much warmer and dryer than normal conditions in its spring wheat region.
While spring wheat might not be faring so well in other parts of the world, here in the US most spring wheat regions have had abundant moisture and plantings have been on schedule. This could be the making of another low protein spring wheat crop here in the US which could make for some very strong premiums down the road, but that remains to be seen.
In the Southern Hemisphere, Argentina has reported that they will export 2-3 MMT of wheat this marketing year after being absent from the export market the last few years. Australia is looking at very good planting conditions as weekend rains brought plenty of moisture to their western growing regions, the largest producing area of the country. They, too, will have plenty of wheat for export and their currency has also dropped sharply in the last few weeks.
For now, it looks like wheat will follow the normal seasonal pattern and continue to slip lower as harvest progresses. At the same time, we have to very watchful of weather in the Midwest; if the US corn crop gets into trouble, price rallies there would certainly be supportive to wheat as well.