Wheat survives outside pressure
The wheat complex had to exercise a bit of self-defense this week, as pressure from financial markets and the other grains could have taken a heavy toll on this wheat market that continues to hover at 11-year highs.
After a round of liquidation from funds caught up in the fray of the financial market debacle, wheat rebounded off of the trendline support and managed to form a minor spike bottom.
There's no lack of volatility in any of the commodity or equity markets, and wheat is no exception. Despite the solid fundamental base of support across the wheat complex, there is still a great deal of technical influence and we will continue to have those volatile days.
Export sales continue to be nothing short of spectacular, with another booming week of 1.1 MMT, double the trade's expectations. It doesn't appear that the rationing process has yet begun with buyers lined up and US sales double that of last year, running 13% ahead of the 5-year average pace of sales.
As the Northern hemisphere tries to wrap up its harvest, the market's attention will quickly focus on the Southern Hemisphere, and what we're finding so far isn't offering much comfort. Argentina is having trouble finishing their planting because of dry conditions in their most productive province of Buenos Aires. To date, they've planted 95% of the 5.45 million hectares expected, down about 2% from last year.
Australia's crop ranges from just coming out of dormancy in the south to entering the heading stage in just a couple weeks in the north. Dry conditions have returned to much of the continent, with some far southern regions faring better than the north. It was reported this week that northern New South Wales had significantly reduced yield expectations and that some producers had turned livestock out onto the wheat fields. Rains are expected in the east central regions and they will be very welcome.
No one would argue the importance of the Southern Hemisphere crop, and the stressful start to their growing season is adding solid support to the bullish fundamentals. We would need to see widespread soaking rains in bough countries to alleviate those fears. Given the rough start to Australia's crop so far, the 23 MMT projection that USDA has for Australia seems too optimistic.
This wheat market has transitioned to a demand led bull market, while at the same time on point to quickly become a supply scare market if crops get into trouble in the Southern Hemisphere. For now, I expect to see wheat continue to be well supported on the breaks and grind its way at least back to the old highs, and likely push into new highs.
I think this market will continue to push higher until we see the rationing process really take hold, or we get another weather scare that puts us into a sharply higher spike trade that fails to follow through. I'm looking for that kind of spike trade on a large trading range, heavy volume day; or a significant gap lower that holds; or a close below trendline support; or something that gives us a topping signal. But so far, we just haven't seen any of those signs of a top formation. And so we wait, expecting the market to keep working its way higher until it exhausts itself.