Wheat rally stalls
Once again, the wheat market showed signs of life last week, only to see it deflate into the close on Friday. The fundamental news has been encouraging with exports definitely improving, a slightly positive crop report, corn showing some strength and even weather making its way into the headlines.
Another week of strong export sales at 842,000 MT that were well above trade estimates was another indication of our 're-entrance' into the export market, particularly for soft wheat. To date, we've sold 81% of USDA's projection of 875 million bushels, which is about 5% behind the normal pace. Yes, we're still behind pace, but it is improving week-by-week. As we head into the final quarter of the marketing year, we'll see the push/pull reaction to tightening stocks, slow farmer movement and the developing new crop, which this year looks to have plenty of moisture available when it breaks dormancy.
The crop report was mostly a yawner, as USDA left most US statistics unchanged. However, they did make some adjustments to the world figures by raising production just over 1 MMT while also raising feed usage 2 MMT and thus lowered ending stocks by 1 MMT. They also raised Kazakhstan's production by 2 MMT while leaving their exports unchanged. They also raised Russia's exports by .5 MMT, which helps to explain their persistent presence in the export market. Other than that, the report really had little impact on price action.
Seasonally, wheat has a strong tendency to move lower during the middle of February, often referred to as the 'February Break'. The rally into the crop report and poor close on Friday could well signal the beginning of this seasonal move. The seasonal tendency is usually over by early to mid-March, at which point the market focuses on weather in the central Plains as the crop breaks dormancy.
Speaking of which, weather has already been an influence on price action not just for wheat, but also beans and corn. Plenty of talk of the weakening El Nino pattern which could have all sorts of implications for spring and summer weather had the markets buzzing last week. Here we go, it's only February, and the weather talk has already begun.
It is encouraging to see wheat begin to trade its own fundamentals, but there is no doubt as to its continued dependence on corn, which will remain the case for a long time. Corn's price action last week saw it test the double-top breakout and quickly move back into its trading range. Corn's chart pattern has the look of having found a bottom; now it has to find the energy to break out of that month-long trading range.
I think that wheat will struggle over the next week or so with the seasonal pressure. But, I also think that corn will ultimately move above its trading range and pull wheat higher along with it as we move into the month of March. Wheat is still the weak sister of the grain complex, but a bullish corn and bean market should be able to support it at least through early spring.