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Grains get shellacked

Grain markets got crushed this week, accentuating a bear move that has already been brutal. For the last couple of weeks, it’s been wave after wave of fund liquidation as the desire to move to the sidelines and into cash is much higher than taking on any more risk in this very volatile and uncertain market environment. 

Friday saw grain prices get shellacked on bearish crop reports and more liquidation as traders rebalanced their accounts before the end of the month and quarter. Large losses in equities are forcing more selling in commodities, and it’s become a vicious cycle. 

USDA’s stocks report showed wheat and corn stocks much higher than expected. At 2.15 billion bushels, wheat stocks were 6% higher than estimates, and corn was 17% higher at 1.128 billion bushels. All wheat production was 2.008 billion bushels, 2% less than expected. Winter wheat was generally in line with expectations at 1.494 billion bushels, while spring wheat was 6% lower at 462 million bushels. Durum production was about 4% less than expected at 52 million bushels.

Spring wheat plantings were lowered again by 1.226 million acres, a 12% drop from the June estimate. North Dakota saw another drop of 700,000 acres, with Montana acreage down 550,000. North Dakota also saw 250,000 fewer durum acres with Montana down 80,000 from the June report.

Wheat has a host of bearish fundamentals that have pressed on the market for the last few months. The difficult spring wheat plantings and the poor hard red winter wheat crop from the southern plains offered some limited price support this summer, but the large world production and stocks situation has kept prices decidedly bearish.

The export competition is very intense and will likely remain that way for the rest of the marketing year. Russia has been the major player in the world export market, with aggressive offers since they removed their embargo this summer. The US hasn’t even bothered to make offers to Egyptian tenders for the last few weeks, knowing that we won’t even be close to Russia’s offers.

That said, Russia has already exported half of their projections. They apparently have already procured most of the wheat that is close to the ports, and are having to move further inland. This could quickly push up their offered export prices and possibly slow down their exports. Possibly. 

We still have the Ukraine and Europe with large crops ready to move and now Canada is looking like they’ve got bigger crops than initially expected as well. If Canada’s spring wheat crop is as large as some are suggesting, it could be s show-stopper for US spring wheat prices. Even though US spring wheat prices have also fallen this summer, they’ve actually soared against the other winter wheat markets. 

We can’t forget about Australia and Argentina, which are well into their production seasons. Australia has recently received well-timed rains and is on track for a near-record crop. They are projecting that exports will be record large as well. Argentina has had some stressful weather early in their growing season. Recent rains will help but the general consensus is that yields have already been hurt. 

There are plenty of negative fundamentals, and the price action certainly reflects that tone. But a quick look at the winter wheat planting conditions here in the US and from Eastern Europe into Ukraine, we could begin to paint a much different picture for next year. That’s a long way off, but large regions of two major exporting nations are planting winter wheat into very stressful conditions, and time is running out to get the crop established before winter comes. 

In addition, we are quickly approaching some longer term price support levels. We know that prices won’t go down forever, and after this recent slide, even 50% retracements would be a big rally. I think that most of the wheat downtrend is about over; we could still see prices dig a little deeper but the majority of the downward move is likely behind us. 

It may take awhile for an uptrend to develop, given the old crop bearish fundamentals. But, it seems to me that the market will soon start to pay much more attention to the early problems already developing for next year’s crop. This certainly not a time to be selling wheat, and my guess is that within a couple of weeks, we’ll want to be stepping up and buying this market. 


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. Past performance is not indicative of future results.

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