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Contract lows greet wheat

Wheat melted into new contract lows again this week. USDA’s supply/demand report showed world production and U.S. stocks increasing, just the opposite of trade expectations. Wheat was already in a well-entrenched bear market, and the unexpected negative news only added to the selling momentum. 

USDA increased U.S. imports of spring and soft red winter wheat by a total of 10 million bushels, all from Canada, and left exports unchanged. The end result was a 10 million-bushel rise in ending stocks, a far cry from the 25 million-bushel decline that the trade was looking for. 

They also raised world production by 5 MMT with end stocks up 4.3 MMT. They left Argentina’s production at 11.0 MMT, well above trade estimates, and they also kept Argentina’s exports at 4.5 MMT, also well above other projections. In addition, they actually increased Australia’s production by 1 MMT to 26.5 MMT, higher than most other projections and curious in light of recent freeze damage in a large portion of the southeast.

Not surprisingly, they increased Canadian production by 4.3 MMT to a record 37.5 MMT, which smashes the old record by more than 5 MMT. Canadian exports were increased by 1.5 MMT; there is little doubt that they will be a fierce competitor not only in the spring wheat market, but also for soft red. Much of the Canadian crop’s protein is well below milling requirement and will be pushed into other lower quality markets. 

This time of year tends to see a drop in trading activity, and this year is no exception. Many traders just take vacation during the holidays, which leads to a sharp drop in trading volume and increases the risk of more volatile price action.

Exports sales were just OK for wheat but strong for corn and stellar for soybeans. Wheat sales at 383 TMT were at the low end of expectations. Brazil was back in for 55 TMT hard red winter, but Nigeria was the largest buyer at 87 TMT of hard red winter. Year-to-date sales for all wheat stand at 77% of USDA’s projections, compared to the five-year average of 71%. 

Egypt this week bought a hefty 300 TMT of wheat, 180 TMT from Romania, and 120 TMT from France. The U.S. did not put out any offers. Romania continues to be an aggressive seller – much more so than what was thought possible as the marketing year began. 

Corn sales were 805 TMT, just above the high end of expectations, with the majority going to Mexico. Interestingly, China contracted for another 112 TMT even though they are in the process of rejecting several recently delivered cargoes and containers of U..S corn because they contain a nonapproved GMO variety. 

Soybean export sales were huge at 1.5 MMT, well above trade estimates. As usual, most of the sales went to China, even though rumors are flying that China is about to begin its seasonal cancellation program of U.S. purchases, now that Brazilian crops appear to be on track for not only record production, but even higher than the U.S. for the first time in history.

While the wheat market continues to be a bottom feeder, it is worth at least noting that the extremely cold weather dipping well into Texas could be damaging wheat that isn’t snow-covered. It obviously isn’t an issue for the market now, but conditions will be closely monitored as the crop breaks dormancy during February in the South and March in the central Plains. 

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