Wheat rally unsustainable
Wheat started the week on a very positive note with limit up price action on another round of US dollar pressure and soaring commodity prices. However, as the week wore on, prices wore out and limit up wheat turned into limit down wheat later in the week.
Even despite some bullish news last week of a boost in world demand, the wheat complex found little positive price action and even less follow-through buying enthusiasm on a report from India that they would be seeking another 1 MMT in the near future, and from a number of other countries stepping up with tender or at least tender announcements.
Egypt made two significant purchases within a week's time, the first from Russia for 190 TMT, and the second from Russia, US and Canada totaling 275 TMT. Of that, only 60 each went to the US and Canada. Despite the confusion in the last few weeks regarding Russia export tariff rate, they remain very aggressive exporters and the settlement of only 10% tariff will do little to slow that pace.
Therefore, the Black Sea will remain a fierce competitor in this export arena for some time with both Russia and Kazakhstan having plenty of wheat for sale and very willing to be the lowest price sellers. Ukraine announced they would delay rescinding their export tariff until Jan 1. That did little to move the market since they have little for sale this year anyway.
The export sales picture for the US hit a wall last week as only 180 TMT were sold the previous week, the lowest for the marketing year and just 1/3 of the lowest estimate. The report did include some cancellations, which is a very important factor to monitor. If the aggressive buying as prices were hitting all-time highs turns into more cancellations, then there will certainly be more price pressure to come as a result.
After the blistering pace to start the marketing year, our sales have clearly slowed down as competition steps up and transportation costs skyrocket. With the high cost of fuel, it actually costs more now for the US to land wheat in Egypt than it did when wheat prices were at all-time highs.
That harsh reality will certainly have a role as we move forward. Despite a weaker dollar making it cheaper to buy the actual wheat, the cheaper dollar makes crude oil more expensive which offsets the cheaper wheat. And the dollar shows few signs of making a stand against the onslaught of negative economic news and the continual interest rate declines.
The Southern Hemisphere is full swing into harvest with Australia roughly 15% complete. Ironically, some of their harvest has been delayed because of rain, of all things. Nothing like salt on the wound. Argentina is in the early stages of their harvest, looking at a very good crop coming and preparing for their export program.
Wheat conditions here in the US continue to show very different situations. The dry pocket of the southwest plains continues to miss important moisture and crops are in serious stress. Emergence is spotty and establishment will be weak as it heads into dormancy in those regions. Interestingly, however, most of the rest of the plains look good and have an adequate moisture base with good establishment. And so another production season begins with Mother Nature keeping things interesting.