Wheat support finally breaks
Wheat markets finally broke below the major supports from early February and last October. After many weeks of testing those lows with prices always finding some support, this week's influx of negative news finally gave the energy to push to new lows.
Early reports of more European feed wheat moving into the southeast US was part of the downward momentum. Another negative component was the announcement that a bloc of Latin American countries had purchased Russian and European wheat.
These countries, Mexico, Peru, Venezuela and others have long been strongholds for American wheat. But the recent plummet in the value of the Euro currency and rally in the dollar has suddenly made the EU and Russia competitive in the region.
The news continued to hammer home the struggle of US exports and the competition we face in light of our own large carry-over stocks and with the huge stocks among other major exporters. Their motivation is increasing to move those old crop stocks as their new cropâ€™s production season gets underway. With the current pace, it looks like the US will export the lowest amount of wheat in 38 years; and unfortunately itâ€™s not because of lack of supply, it's a lack of competitiveness.
With no major trouble spots showing up yet around the world's production regions, it's understandable why the market would continue to focus on old crop fundamentals. But, the new growing season is here and Wednesdayâ€™s spring planting report will at least hold traders' attention for awhile. Most will focus on spring wheat plantings, which certainly take on more importance in a year with such low winter wheat plantings. Early suggestions are that spring wheat plantings will be steady at best with a good chance for another reduction. There are also some who suggest that winter wheat plantings are not as low previously projected but those estimates will not likely be changed in this report.
There are also some possible trouble spots around the world that are worth keeping on our radar. China announced that they were sending 1.4 MMT of grain to their southwest region which is experiencing the worst drought in 100 years. This region is not a wheat producer but is just south of the major wheat areas, of which the southern half has reportedly been much drier than normal. It would appear that the drought is at least creeping into some of China's wheat production region.
Also, the Black Sea region has reported higher than normal winter kill, primarily in Russia and Ukraine. It's still early in the season but those two regions of China and the Black Sea are very important to world production, consumption and exports, so keeping a close watch is very important.
There were also reports over the weekend that some Russian exporters were having difficulty originating enough wheat to fill cargoes being loaded for shipment to Egypt. The reports suggest that producers are balking at the low prices and just not selling, forcing some exporters to increase prices $6-10/ton. This could be a factor of Russian producers wanting a better look at their crop prospects, particularly with winter kill becoming more of an issue. Bottom line, because Russia has been the world's price setter, if Russian producers' cash sales are slowing, and exporters are being forced to pay higher for spot supplies, it would suggest that Russian export offers will have to rise as well, effectively setting a floor under world price - at least for now.