Louise Gartner: Wheat struggles to hold support
It was another disappointing week for the grain complex as it was mostly more fund selling to start the week, with any meager attempt to rally only met by more selling and fund liquidation. Wheat could be called the winner, if there was one, as it managed to hold major supports (for the most part) while corn and soybeans just saw more pressure to end the week.
China remained the center of attention with more declarations of measures to control inflation, impose food price controls, limit excessive speculation in commodity markets and clamp down on hoarders with jail time. They’ve increased the bank reserve requirements twice in as many weeks, contracting the supply of cash and leading many to believe that imports on a variety of goods will certainly drop as a result. They’ve also announced that they will release more grain from government stocks, but one does have to wonder how they’ll keep food prices down if they decrease grain imports. Will the supposed drop in hoarding and their own stocks be enough?
The market took China’s announcements very bearishly. The prospect of less demand for commodities and thus a reduced inflationary threat produced aggressive selling across the entire commodity space. Nothing was sacred as funds bolted for the door in virtually everything except the cattle complex, intent on protecting their huge profits from the last few months. Some suggested that they would not be back until after the first of the year, which makes sense since they usually take their positions and activity down during the holidays anyway.
China also made headlines early in the week as negotiators in Argentina apparently inked a deal to import 5 MMT of corn along with some soybeans. They also apparently forged an agreement with Brazil to increase soybean acreage exclusively for production to export to China.
Wheat still has some bullish friends as the weather watchers continue to point to very dry soils across the western plains and poor crop conditions as it heads into dormancy. While the rest of winter wheat country has received ample moisture and crops have improved, the concerns are still there for that key western region.
Also supporting wheat were the announcements by both Ukraine and Russia this week that they would be extending their export restrictions until at least late in 2011, which really wasn’t all that much of a surprise. Nevertheless, it reminded the trade that the export market will be wide open next year as the most aggressive sellers will likely be on the sidelines for another year.