Wheat rallies to trading range high
Wheat covered the entire trading range last week, with Monday starting at the bottom and by Thursday we were already back to the top. Friday's bearish crop report gave the market a reason to retrace. Harvest delays in corn and soybeans are creating a significant rally for them, and wheat is benefiting as well. The more it rains in the Midwest, the more the row crops want to rally; creating more spillover support for wheat.
Friday's supply/demand report did show the production increases we'd been expecting to see in the wheat complex. We saw a 40 million bushel increase in spring wheat, along with minor production changes in the other wheats. Total US production was increased a net 36 mb. Feed use was lowered 45 mb to 190, and exports were lowered 50 mb to 900 mb. Total ending stocks were increased a hefty 121 mb, taking us to a very comfortable 864 mb.
World wheat production was increased 4.4 MMT, taking it to 668 MMT. World production estimates have increased 11 MMT over the last 4 months, taking us to only 2% lower than last years record 682 MMT production. It was interesting to note, however, that world ending stocks were left unchanged at 186 MMT, still 20 MMT higher than last year.
There's no shortage of wheat in the world, but the story still remains with quality wheat where there are certainly tight supplies, which will only get tighter as the marketing year progresses. Typically, quality premiums emerge around harvest time. But this year we saw a delay because of the heavy movement of last year's higher quality crop just before harvest in the northern plains.
With those supplies already gone, we're now seeing the high pro premiums surge and I would think they will continue strong through the marketing year. We also tend to see even stronger premiums into the spring when supplies are their tightest and producers get busy with fieldwork and deliveries decline significantly.
Wheat does have some other developing positive fundamentals, primarily in the active export sales we've seen over the last few weeks, which have consistently been better than trade expectations. After USDA's reduction in export projections 900 million bushels, we're now about 48% of projections, still behind the average pace of 61%, but better than the 45% as of last weekâ€™s export sales report. That said, we've clearly still got some aggressive exporting to do if weâ€™re going to meet even their current projections.
At least in the short term, I expect to see wheat prices continue to climb higher through the seasonal time window which would tend to peak in late October/early November. That high coincides with the beginning of the Southern Hemisphere's harvest. Their harvest, however, will be unusual because Argentina will only have about half of their normal production. So, we likely won't see as much pressure from the Southern Hemisphere as we normally do, even with an average crop out of Australia.
If wheat can take out last week's highs, it opens up the charts for a healthy run, with the major resistance not showing up until we get to July's old double bottom breakout, which is the 5.32 level on Chicago Dec, and the 5.58 level on Kansas City Dec.