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More pressure for wheat

Wheat spent the week getting pummeled along with corn and soybeans before finally making an attempt to bounce late on Friday. Old crop months took out trading range lows on Friday before the market settled basically at the old low. New crop months pushed down into the first level of support and also bounced slightly as they closed out the week.

Corn was the impressive trade as it managed a strong reversal higher after also being pressed throughout the week. Friday’s announcement from the EPA denying a request to waive the RFS mandate brought in steady buying, even though the decision was largely expected by the trade.

With the drop in US prices, we’ve become the world’s cheapest wheat. However, transportation costs are still making us uncompetitive in key markets, particularly in the North African countries. Europe has captured most of the business recently, as the absent Black Sea is largely absent. 

It looks like the Black Sea will become more absent for the rest of the marketing year. Ukraine’s government announced that they had sold their self-imposed limit this year of 5.5 MMT of wheat and would halt exports as of Dec 1. That was their announcement this week, anyway; they’ve been all over the map these last few weeks. Russian sales have been minor if at all recently, and trade talk says they’re tapped out.

The Europeans will be tapped out soon as well given the torrid pace of sales so far. This week’s export licenses were the highest since September, 2010. With the lowest production in five years, it’s conceivable that the Europeans will run out of wheat far faster than normal.

That leaves the US and Canada in the Northern Hemisphere, and a significantly smaller crop coming out of the Southern Hemisphere to fight it out into the end of the marketing year. As for quality supplies, it’s just us and Canada; that said, quality premiums won’t likely see much movement until spring when supplies get tight. Anecdotal reports suggest Canadian farmers have been aggressive sellers in their new free market system. That could be good news for the US down the road when quality stocks get tight.

Export sales came in at 314 TMT, much better than last week but still not enough to keep up the pace needed to reach USDA’s estimate for the year – even after they lowered total projections by a full 50 million bushels in last week’s supply/demand report. Year-to-date (marketing year) sales are running at 561 million bushels (15.27 MMT), just 51% of total projections. Normally by this time of year, we’ve sold 70% of total projections. 

While it is encouraging to see sales pick up and know that we’re becoming more competitive, we’ve still got some work to do just to get to a normal sales pattern.

Technically, the market has been spending a great deal of time hovering near the bottom of the range, and is managing to barely hold on after jabbing the lows on Friday. There is obviously strong support at these lows; the problem has been maintaining upward momentum.

This trading range is now four months old - impressive for any market to stay confined that long. The broader formation still suggests that this consolidation at the top of the summer’s rally would eventually be the springboard for another leg higher. I don’t know about you, but I’m growing weary waiting for it and getting whipsawed in the meantime. But I have to stick with the formation and thus look for wheat to rally from here, still believing that those highs eventually will get taken out. 

I would also suggest, too, that if and when that happens, it will likely be the making of a long term top. For usually when a long term trading range gets broken, that move is usually the final move of a long term trend.

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