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Wheat struggling to hold support

The wheat markets continue to fail to move higher after basing sideways for at least three weeks. Minor attempts to rally only fizzle quickly and back down wheat goes to the contract lows. A negative U.S. crop report, more world production increases, index fund readjustments and more export business lost to Russia were too much negative news for wheat to hold its meager gains.

The quarterly stocks and small grain summary reports didn't help as they offered some negative input as well. Wheat production estimates came in at 2.22 billion bushels, slightly higher than trade estimates and up 39 million from USDA's September estimate of 2.184 billion. Hard red winter was increased 4 million to 929 million; soft red lowered 9 million to 412 million; white winter lowered 11 to 215 million; spring increased 39 to 587 million; and durum increased 12 to 110 million.

The stocks report also showed a significantly higher number than trade estimates. September 1 stocks of 2.215 billion bushels were 81 million higher than expected and up 357 million from last year. So, despite a drop in production this year of 280 million bushels, stocks are up -- big. This reflects the big jump in carryover from last year and the slower pace of usage and exports.

The markets reacted negatively, as one would expect. But contract lows held and the initial selling was offset by a surge of buying late in the day, creating a nice reversal up. That reversal up cast some hope of a bottom finally being in, but leave it to an outside announcement to quash that idea.

That announcement came from Deutsche Bank AG, which said that they would be liquidating half of their positions in Chicago wheat, corn and sugar by the end of October to meet the new CFTC position limit requirements. They would also be switching those long positions to other markets, including Kansas City wheat and live cattle. Ironically, while the news added pressure to the markets being liquidated, it did nothing to support those being added.

Stats Canada weighed in with a wheat production estimate that was 1 MMT higher than last month at 24.5 MMT. The market took it negative even though it was still 14% less than last year's production. Kazakhstan also chimed in with a wheat production estimate of 21 MMT, their second largest crop in the last five years.

Brazil's wheat harvest is well under way, but running into some serious disease problems due to excess moisture during much of the growing season. Their quality losses are becoming quite significant and they are suggesting that they'll have to come to the open market for as much as 3 MMT this marketing year. Normally, that would mean business for either the U.S. or Canada. But as we saw earlier this year, Russia has successfully negotiated wheat sales with Brazil; so we can expect that they will be aggressively vying for that business as well.

The U.S. is on track for some very good planting conditions in the central and southern plains. Plantings in KS and OK had been behind schedule due to wetness, but that's a good problem to have -- for now. Recent rains in the far southern plains across much of TX also are helping to offset a long, entrenched drought. This sets the stage for strong plant development heading into dormancy.

While the seasonal tendency is to still move higher for the next few weeks, the inability to carry through with rallies so far has been disappointing to say the least. It’s possible that the seasonal window will just stop the slide and continue the basing. We’ll just have to wait and see on that one. It does reflect the long term negative bias of the market, and speaks to the importance of being prepared to sell a rally if one does come. Again, the old double bottom low from July is the ultimate upside target.

This publication is strictly the opinion of its writer and is intended solely for informative purposes. It is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way guaranteed. Futures and options trading always involve risk of loss.

The wheat markets continue to fail to move higher after basing sideways for at least three weeks. Minor attempts to rally only fizzle quickly and back down wheat goes to the contract lows. A negative U.S. crop report, more world production increases, index fund readjustments and more export business lost to Russia were too much negative news for wheat to hold its meager gains.

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