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Louise Gartner: Wheat strength fading

05/02/2011 @ 1:38pm

Wheat came into this week still licking its wounds after a battering last week, but with at least some upward momentum after Friday’s rebound. Weather is still the key focus, with continued dryness in Northern Europe and way too much moisture and cold in the US northern plains and Canadian prairies. 

We’ve seen a great deal of long liquidation across the grain complex as price action has turned extremely volatile in typical weather market fashion. Some major hedge fund managers are rumored to be exiting commodities because of the volatility, but apparently there are plenty of buyers who are still willing to take ownership on the breaks, especially in corn.

With winter wheat, the time window is closing as to how long the weather can be bullish. The drought region in the US southwest is well contained and the market has long factored in those losses. The planting delays in the northern plains and Canadian prairies are still a problem that will be around for awhile longer. The dry conditions in northern Europe do not appear to be going away either. China is still seeing some dry conditions in their winter wheat regions, but the far northeast region has had good rains to start their spring planting season.

Elsewhere in the Northern Hemisphere, growing conditions are actually quite good, particularly in the key Black Sea region. The prospect of a large crop coming from the once dominant exporter and reports of larger than expected old crop stocks have Black Sea farmers clamoring for their governments to lift the export bans. 

I think it’s safe to say that once that region is back into the export market, they will have a major negative force on prices. But it is still a long way until their harvest, and my guess is that at least the Russian government will want to be confident of new crop production numbers before opening up the export market, which would be late July at the earliest. 

The crop tour starts today, and traders have a wide range of expectations of what the survey will find. Early birds apparently were already scouting fields last week and reporting that their findings were better than expected. That certainly is not what producers are reporting, so this week’s survey should give us a clearer picture of actual crop potential.

Technically, the sharp sell-off was unexpected considering the general upward trend that wheat had been enjoying for the last several weeks. Wheat found support at the April lows and quickly got a nice bounce, so we’ll see if the market can maintain that buying interest.

In the bigger picture, however, it seems that the wheat complex has thrown up some red flags. Even with continued weather problems in key growing areas, the swiftness of the major break last week would suggest that the upward momentum is running out of gas. While corn would offer support if it kept going higher, the window for a weather market in wheat is quickly closing. There is a strong seasonal tendency for wheat to top in early May and it’s entirely possible that the high was established last week. At this point, last week’s highs have become significant resistance and a rally back to those levels would present a good selling opportunity. If that is going to happen, it most likely would be within the next two weeks into the typical seasonal high time frame.

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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.