Wheat pushes to new high
It was another active week for the wheat complex, which saw strong buying early in the week that took prices to a new 5-month high, only to be followed by a spike high and a quick retracement to near the recent breakout support.
The wheat complex has seen a great deal of influence from the outside markets, with the fluctuating dollar and steadily higher stock market. We've also seen spillover support from a stronger energy market, which supports the corn and soybean complexes.
The fund involvement has been huge in the last couple of months. Cheap money and the weak dollar have pushed vast sums of money into the commodity space, and the fund managers are looking for markets that haven't rallied much compared to markets like gold, which is at an all-time high, or energies which have already staged large rallies themselves.
That thinking quickly takes them to the grain complex, and in particular, the wheat market. The funds' perception that the wheat market is undervalued is not quite understood by the fundamental traders, and that conflict is creating plenty of confusion as to why and how wheat can rally in light of its numerous negative factors.
The technical picture continues to suggest that there is more upside to the market. We seem to be in a minor consolidation phase for a few days, but if we're going to see a leg up similar to the October rally, then we've got more to go; the target for Kansas City March is still the 6.25-6.30 level.
For some fundamental news, we see once again that Egypt bought another 175,000 MT. They split the sale between Russia, France and Germany. As has been the case lately, even the lowest US offer was well above other offers; this time about $.36/bu higher. Even with the dollar on its nose, we can't seem to keep up with the competition that has plenty of wheat to sell and really doesn't have to discount since our prices are so much above theirs.
Indeed, world prices have begun to creep higher over the last week as Russian prices were $5/ton higher in response to the Egyptian purchase. European prices also were higher, following the lead of Russia and being drug higher by the rise in US prices.
Australia is trying to move through their harvest, and production estimates continue to be ratcheted downward. Rain delays have slowed the progress in the key state of Western Australia, and quality concerns have been raised, but it's too soon to tell at this point if it will become a major issue. The latest round of production estimates hover around the 21-22 MMT, down about 1 MMT from just a couple of weeks ago. At this point, they are still expected to be a formidable competitor, and it's just a matter of time before their crop is ready to go.
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