Wheat sees sharp rally
Wow, how fast can you turn from a bear to a bull? When the fundamentals change suddenly, one has to re-evaluate their outlook.
Before the Easter break, the wheat market had a bearish slant, with excellent growing conditions and the prospect of a huge crop, not to mention a record corn crop being projected. Of course, the market was noting that we had very cold weather on the way over the weekend that clearly was a threat.
And Mother Nature delivered, and is still delivering for that matter. On Monday morning, we knew there was severe damage, but also knew it would be difficult to really get a good assessment for days, if not weeks. As crop watchers converged into the fields to assess damage, their increasingly dire reports finally made the market take notice. Adding insult to injury, a winter-like storm passed through the central plains Friday, dropping heavy snow onto fields already struggling to recover from the frost.
This is not going to be like 1997, when a hard freeze knocked the wheat down but excellent weather conditions thereafter rescued the crop, which ended up with big yields. Early estimates of production declines were in the 50-100 million bushel range. By the end of the week, those estimates were increased to 100-150 for hard red winter, and 50-70 for soft red winter.
When you consider that just this week USDA issued their monthly supply/demand report which lowered 06/07 ending stocks by 50 million bushels, it makes old crop stocks relatively tight. But, it also suggests that 07/08 isn't going to get any better. World production and stocks will remain tight for another year, and we've barely begun the growing season in the rest of the Northern Hemisphere.
Luckily, most other major wheat producing regions are sitting in generally good shape. There are some dry issues popping up in the CIS and China, but it's still early for those crops. The market is also taking note of the persistent dryness in Australia, where producers are gearing up for fall planting. Last year handed them their worst drought in over 100 years, and they are still struggling with dryness issues in most of their producing regions.
Export sales for the week were impressive with 808,000 MT sold, well above trade estimates. Even corn had a great week with 1.5 million MT sold. We're seeing that the drop in prices from the crop report brought some aggressive buying. There is also talk that Russia is out of wheat, so if this rally in prices doesn't move business back to them, then we'll know that our leverage is increasing in the export arena.
The market will continue its volatility as we review crop condition reports and get a better handle on frost damage. In addition, wheat will continue to be affected by the corn market, which is becoming concerned about fieldwork delays from wet weather. Wheat appears to remain well supported on breaks, but will need another fundamental boost to get past resistance levels that stalled the market last week. That could well come from more damage reports this week.