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The bears swirl the wheat market

12/06/2013 @ 2:27pm

It didn’t take long for wheat to give up its gains of the last few weeks, moving back down to long term support levels in a matter of days. So far, those levels are holding.

Stats Canada estimates and disappointing US export sales were largely to blame for the retreating prices. 

Stats Canada raised production estimates for all of its major crops, with wheat leading the way at a record 37.5 MMT, up 4 MMT from their previous estimate and up 10 MMT from last year. It is huge production but quality was low at 12 – 13% protein, much below the 14% that the millers like to have.

US export sales came in at a paltry 229 TMT, much below the range of estimates. Year-to-date sales pace is still above the average as it has been all year, but the margin is narrowing. The Southern Hemisphere’s harvest is moving along quickly and is already competing in the world market – at least for Australia where they have a decent crop. Argentina is another story.

Argentina’s government issued another production estimate this week, sticking with their 8.5 MMT estimate. That figure brought plenty of criticism a month ago, and the government said they would re-issue another estimate soon (which they never did). Private analyst, Informa, is currently estimating 9.8 MMT, with others are slightly above the 10.0 level.

Either way, it’s clear that Argentina is harvesting another disappointing wheat crop and rumors are that the government will try to limit or eliminate exports. Same old thing, different year for the Argentine wheat farmer.

Not to be lost in this negative atmosphere is the fact that a massive cold front is barreling down into the plains and Midwest. From about central Nebraska on south and to the east there is very little snow cover and it is really, really cold. 

The potential for winter-kill is certainly there, but it’s hard to get too concerned about it when we won’t know of any damage until spring. It’s just something to keep in the back of our minds, along with the poorly established Black Sea crop that is extra vulnerable to winter-kill as well.

Next week, we’ll get the December supply/demand report, not usually a major market mover. The trade is expecting an upgrade to corn production and possibly beans as well. However, they expect ending stocks for wheat, corn and beans to all be slightly lower than last month’s estimate. 

Most likely, price action will turn quiet after the report as traders settle into holiday mode, which is basically moving to the sidelines until January. There isn’t much concern about the South American corn and bean crop, both of which are on pace to be huge. 

I expect that wheat will find support here with world demand stepping up again at these price levels. Upside potential is likely limited to the highs of this week after the outside day lower. The seasonal tendency is for wheat prices to have a weak beginning to January followed by a rally into early February and then move lower into the February Break of late Feb/early March. 

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