Wheat stalls at resistance
The wheat complex made a notable effort to take out the previous week's swing high, but just couldn't muster enough momentum to get it done. Once the rally faded, selling quickly took over and prices looked like they'd be testing the major lows established just two weeks ago. Thatâ€™s where the real test lies; can the market hold those lows and perhaps establish a trading range, or was this rally just another breath of air before submerging again?
Fundamentally, we pretty much know where we are. We know world production numbers; we know who needs what and who has what, both from a milling and feed wheat perspective. We don't know if the Southern Hemisphere will have harvest problems, but for now that is a minor unknown. The next supply scare can't happen until India's growing season at the earliest, which will be in the Jan/Feb time window, with harvest in the March/April time window. Once we get into the March time window, though, all eyes will be on the US and other Northern Hemisphere regions, which for now have crops planted into excellent conditions and headed into dormancy in very good shape.
USDA issued their monthly supply/demand report this morning, with just minor adjustments for wheat, in both US and world figures. The trade had expected that USDA would increase US exports, particularly for soft red winter, which they did by 30 million bushels; they also raised exports for hard red winter by 10 million. But they lowered spring wheat exports by 20 million and white wheat and durum by 10 million each, thereby making net exports unchanged. The trade will take this as negative to price action, which could likely be the catalyst to test the recent swing lows. It is likely, though, that future crop reports will increase export projections simply because our pace of exports is significantly above average.
The trade had also expected wheat ending stocks to decline by 15 - 25 million bushels, but USDA actually raised them by 2 million, reflecting a 2 million decline in seed usage. They expect winter wheat plantings to be down due to the late harvest in the Midwest. Most of those lower plantings will likely be from soft red acres, although they commented on a drop in hard red acres as well.
World production numbers continue to see some fine tuning, with the EU getting an increase of 3.4 MMT along with a 2 MMT increase for the Black Sea region. Declines were given to Australia - down 1.5 MMT, and Argentina- down 1 MMT. Exports were also lowered by .5 and 1.2 MMT respectively.
And speaking of the Southern Hemisphere, both Argentina and Australia are into their harvest seasons and are expected to be exporting available supplies quickly. Argentina is only slated to export 5.8 MMT, down from 10.5 last year, so they will not make much of an impact on world prices. Australia, however, is projected to export 13.5 MMT, still down from their normal roughly 15 MMT, but nevertheless a sharp increase from the last two years of 7.5 and 8.7 MMT. Put Argentina and Australia together, and theyâ€™re only exporting 1 MMT more this year than last year. However, most of Australiaâ€™s excess supply will go to key markets already fraught with competition, whereas most of Argentinaâ€™s excess usually goes to Brazil.