Market bulls don't blink at frost
Despite frost and freeze issues in the Midwest, wheat had another week of selling that took prices down to trading range lows one more time in Chicago and Kansas City. Minneapolis is still doing better than the winter wheats, but also was pulled back into its trading range.
The catalyst for the negative attitudes mostly stemmed from the supply/demand report that was surprisingly bearish for corn. USDA left corn ending stocks unchanged when the trade was looking for a drop. The negative corn price action pulled wheat lower, despite a positive report for wheat. Ending stocks for wheat were lowered by 32 million bushels to 793 million, right at trade expectations. Most of the decline was from the long awaited increase in wheat feeding, which was increased 35 million bushels.
World wheat stocks were lowered by 3.3 MMT to 206 MMT. After world wheat stocks were projected at record highs just a few months ago, they are now below the old record – but still plentiful, however.
Temperatures were cold enough in the southern Midwest to do some damage, but the market brushed it off as minor, with some suggesting that it could actually be bearish if the partially damaged wheat ends up as feed quality.
Still, others suggest that the incentives are high enough for farmers to tear up spotty wheat fields and plant soybeans. Obviously we’ll have to wait and see how that turns out.
The one-day reaction to cold was quickly thwarted by the general selling across the commodity space as investors reacted to disappointing US and China economic news. The stock market weakness fueled more ‘risk off’ trade, with commodities getting much of the selling.
There was also weakness from very good rains across the southern and central plains, which have the hard red winter wheat crop looking stellar. If the plains can escape April without cold damage, then we’re looking at big yields from that major production region.
The Northern Plains are evolving into a different story with dry conditions hampering spring grain seeding. Longer range forecasts suggest the dry weather won’t change much over the summer. We come into this production season with relatively tight stocks of high quality spring wheat. A year of low yields might give us high protein, but the total supplies will remain tight.
Thus, Minneapolis continues to hold well against the other two wheat markets. If Midwest freezes couldn’t get Chicago to rally against Minneapolis, it further reinforces the strength of that spring wheat market.
So, it looks like the US has avoided a major weather disaster (although damage is still being assessed). However, Europe is still adding up its losses after a brutal winter. The latest estimates are that 4.3 MMT of winter wheat was lost along with 1 MMT of barley. The Europeans expect to see wheat exports drop by 3 MMT to 13.5 MMT, which would be their lowest in 5 years. The lost acres will be replaced primarily with corn.
Ukraine had some better news this week, seeing 90% of its planted acres greening up, much better than expected after the poor planting season and tough winter. It looks like instead of having to re-seed 3.5 million hectares, it will only be 2.5 million. It is expected that corn will be the replacement crop of choice.
Wheat prices are back to testing the trading range lows once again. The bullish enthusiasm has clearly waned after the freeze scare in the Midwest, good rains in the plains and rains in Europe and the Black Sea region. I would expect these major lows to hold, but just the fact that we’re back down here suggests the road upward may be more difficult than I thought just a couple weeks ago.
Wheat production in the major exporters is likely to be down slightly this year, which should provide underlying support, but the improving weather and sketchy economic situation are keeping the bulls on the sidelines.
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