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Quiet week for wheat

Wheat markets spent most of the week pacing sideways, finding some stability after last week’s selloff. The trading range lows continue to hold, but we’re spending a lot of time down here. Corn couldn’t hold its gains and contributed to wheat’s struggle. Soybeans rallied most of the week, but appeared to stall at old lows that are now resistance.

US export sales dropped back down to the usual disappointing level that we’d become used to before the surge a couple of weeks ago. The strong sales prompted higher prices, but the higher prices led to lower sales. No wonder we’re stuck in a trading range. So far this marketing year, exports are running 55% of projections; normally we’re at 75%. The US is going to have to light a fire under exports or USDA will be forced to lower projections yet again. They’ve already been lowered twice for a total of 100 million bushels and now sit at 1.1 billion bushels, which is still higher than last year’s 1.05 billion. 

Argentina’s wheat harvest problems are getting worse; reports this week of sprout damage showed up on the newswires and the rains just keep coming. Their wheat crop is pretty much a disaster at this point, and the rains are creating increasingly serious issues with their corn planting/production as well. Wheat production estimates remain at 10.1 MMT, but that number is sure to decline in the near future. 

While Argentina is still considered a major world exporter, most of their surplus gets sold to Brazil, who typically import about 7 MMT of high quality milling wheat annually. The sharp drop in quality supplies from Argentina will force Brazil into the world market and straight to the US or Canada, with the US likely being the big winner since our wheat is more similar to Argentina’s. We’ve already heard reports of Brazil looking at US wheat, and I would expect to see more serious activity as we get into January.

Australia’s weather has improved with dry conditions helping wheat to mature and allowing harvest to progress. Two internal estimates of Australian production were released this week. ABARE pegged Aussie wheat production at 22.0 MMT with exports at 20.9MMT. However, the Commonwealth Bank of Australia took production down to 20.8 MMT with exports at only 17.9 MMT, which would be a 27% drop from last year’s exports. Most market watchers would be in the camp of 20 MMT or less for production and the lower export figure, and thus would take Australia out of the number two spot for world exports. 

Canada would likely replace Australia as the world’s second largest wheat exporter with an improved outlook of its harvest. STATS Canada reported this week that total wheat production was 27.2 MMT, up 2 from last year. Durum jumped .5 MMT to 4.6 with canola dropping slightly to 13.3 MMT, down .8 from last year.

Technically, wheat is holding the range support but that’s about all we can say. The inability to hold rallies is disconcerting, but until we definitely break to the downside I’ll continue to look for an eventual breakout to the upside. From a seasonal perspective, I would look for that move to come from about mid-January into early Feb.

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