Wheat rallies with corn
Wheat had a very impressive run last week, continuing the late rally from the previous week. Positive fundamentals weren't all that easy to find, not that it matters to a market that's more interested in where corn is going. There is no doubt that wheat is married to corn and will be for the foreseeable future, at least until the market gets comfortable with prospective corn production.
But we did see some buying interest from Iraq and maybe the US will get some of that business, particularly with trade talk of Iraq needing to be more consistent buyers in order to control domestic wheat prices. Egypt was also back with another tender issued late on Friday, but the business went to Russia as the higher prices took us out of the competition.
Export sales last week were within estimates at 450,000 MT but we'll see how we do in the future after we've rallied over 30 cents just last week. As we enter the final quarter of the marketing year, we see total wheat export sales running 13% behind last year, but only 4% behind the pace needed to reach USDA's projection of 875 million bushels. The final stretch of the marketing year will certainly be interesting as stocks will be their tightest, especially for hard red winter as it continues to filter into the feeding rations. Will the users have to become aggressive buyers to protect dwindling old crop supplies or will they be able to get by until plentiful new crop arrives will be the question.
Over the weekend, a cold snap in east/central Ukraine took temps to below zero F in an area that had little or no snow cover. The temps were cold enough to potentially damage wheat and rye, especially after poor establishment last fall. There is reportedly plenty of moisture in the ground that may have provided some insulation and helped to prevent serious frost damage. This does not appear to be a large area but does fall in a high producing region, so it bears monitoring.
If we look at negative fundamentals, we can quickly make a list. Plenty of moisture just about everywhere you look in wheat country, and of course the increase in plantings waiting to take advantage of that moisture. There is little concern of winter kill at this point and the crop will be breaking dormancy within just a few weeks. Worldwide, it's a similar story with an increase in acreage in most major producing regions with good moisture bases. We are closely watching China and their dryness issues and now the Ukraine with their potential winterkill, but overall, world wheat prospects look quite good.
The story for wheat really is still the corn market and the direction it chooses to go. And for now, corn's trend is clearly still up even though upside targets have been reached. Even though farmer selling has increased significantly in the last week, evidenced by a much weaker basis, end users continue to be hand-to-mouth buyers, and therefore breaks are well supported for corn. With wheat feeding already taking place in the southern plains, wheat will continue to closely follow corn's price action and likely maintain the current spread relationship.