Wheat slides with corn
Wheat made a couple of attempts to rally last week, but mostly drifted lower on a lack of leadership from corn. Fundamentals continue to move to the bear side with very slow export sales amid tough foreign competition, excellent moisture prospects for the plains, and a slowdown in the buying enthusiasm for corn.
The exports have been sluggish most of this marketing year, and last week's performance didn't help. Only 246,000 MT were sold, well below the range of estimates from 400,000 - 550,000 MT. So far this marketing year, the export pace is 6% behind the average on meeting USDA's total export projections.
The US did sell 120,000 of soft red winter to Egypt over the weekend, but Russia was also in on the action with 85,000, most of which was already in Egypt. With Russia still a presence in the export market, we are likely to remain behind the curve and ultimately see more downward adjustments in export projections.
The International Grains Council increased their estimate of 2006 wheat production by 2 MMT to 589 MMT, and increased ending stocks the same amount to 116 MMT. They also increased 2007 plantings estimate by 3.5% and increased production by 5.4% (32 MMT) to 621 MMT. The acreage increases are expected to come from the EU, Russia, US, India and Australia while Canada and China are both expected to see a reduction in wheat plantings.
There are some who suggest that even that increase won't be enough to satisfy world demand, and next year's ending stocks will still be lower. While that could be the case, the market sure hasn't shown a concern for it yet.
The leadership of the grain complex has turned a little cloudy. Corn is struggling to maintain its top billing while beans try to nudge onto center stage. As we head into the planting season, the acres analysts will in high gear, trying to be the first to know just how much corn is getting planted and who it's stealing the acres from.
Corn acreage estimates have been rolling in and the numbers keep getting bigger. The Congressional Budget Office is estimating an 8.2 million acre increase and Farm Futures Magazine is projecting a plus 10.1 million, with 6 million of those coming from beans. With so much riding on ethanol usage and corn production, price action for corn is certain to have more volatility and wheat will feel its influence - in whatever direction corn eventually heads.
Technically, look for support in KC March at last week's low of 4.835 followed by support at the naked close at 4.8125. The next support will be the gap from 4.74 - 4.765, and then the swing low of 4.67. Resistance will be the breakout and swing high from 4.98 - 5.01. The next resistance levels will be the swing highs of 5.06 and 5.11. In Chicago March, look for support at last week's low of 4.61, then the trough of 4.575 and then the swing low of 4.475. Resistance will be the trough of 4.685, followed by the swing highs of 4.81 and 4.865.
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