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Technicals weaken wheat-Louise Gartner

It was another brutal week for the grain complex. After a brief rally on Monday morning, the market went steadily lower for the rest of the week. Wheat managed to find support at the April lows, but front-month corn more than filled the gaps from the March 31 acreage and stocks report, and soybeans took out their April lows. 

In a wave of fund liquidation across the commodity space, we saw silver lose 34% of its value, crude oil lost 18%, corn 10%, wheat 15%, soybeans 7%, and cattle were down 6%. Rumors were rampant of major hedge fund managers selling out positions and moving to cash, citing the markets were too volatile. 

Meanwhile, the fundamentals really hadn’t changed that much. Conditions for winter wheat in the southern plains haven’t improved. The northern plains and much of the Midwest are still too wet to plant. Northern Europe is still experiencing near-drought like conditions, and even China is reporting yield losses for wheat in the North China Plain. 

Normally, wheat begins its seasonal trek lower through May and into June, mostly the result of the southern plains’ harvest pressure. One has to wonder, however, just how much harvest pressure we’re going to get if half the crop is already a goose-egg. The Midwest will have a large soft red winter wheat crop which will likely give some harvest pressure, which will also coincide with harvest gearing up in the rest of the Northern Hemisphere. 

At this point, it appears that that the Black Sea region may be the only major exporter with a large crop; and they will have both feed and milling wheat. They are already discussing re-opening the export market but that seems unlikely to happen before August, since July is the month that the drought blew up on them last year. Reports this week had Russian exporters accumulating old crop stocks in preparation for the lifting of the ban.

But elsewhere, wheat stocks appear to be getting tighter. Unless Northern Europe receives significant rain soon their supplies will be down notably from last year, particularly considering their aggressive export pace and sharply reduced stocks this marketing year. China is already suggesting that they may have to import much more feed wheat this year because of an expected drop in wheat production. Most of those supplies would likely come from Australia. Here in the US, quality wheat stocks look to be tight again this marketing year, as planting of spring wheat here and in Canada is off to another very slow start. We also continue to see Western Australia caught in drought conditions during their planting season.

The hard red winter wheat crop tour took place this week and yields were lower than average, as expected. Total average yield for Kansas was 37.4 bu/acre, down 9% from last year. Total production was estimated at 256 million bushels, down 23% from last year. It’s worth noting, however, that the numbers are a snapshot of current conditions, and many producers remarked that if rains don’t come in the next week, their yields could easily be half of those estimates. Forecasts don’t call for any rain in the next week and only light rains the week after.

Informa released their winter wheat production estimates on Friday, projecting total US winter wheat at 1.441 billion bushels, down 55 million from their estimate last month. Total hard red winter wheat was estimated to be 792 million, down 226 million (22%) from last year. Soft red was projected to be 418 million, up 180 (75%) from last year. Corn plantings were set at 91.9 million acres, up 140,000 from their estimate last month, but still down 300,000 from USDA’s estimate. Soybean plantings were set at 76.0 million acres, up 730,000 from their estimate last month and down 600,000 from USDA. Spring wheat plantings were pegged at 14.1 million acres, down 100,000 from their last month’s estimate. 

The price action in wheat, and all of the grains for that matter, has certainly seen an elevated level of volatility over the last couple of weeks. The wave of fund liquidation took wheat back down to the April lows, which so far appear to be holding. Similar to last week, wheat had a nice bounce on Friday after taking a good shellacking for most of the week. 

With corn struggling to regain upward momentum, wheat might be also pulled back down. But for now, with prices holding once again at key supports, the odds of moving higher, at least short term, appear to be better than moving lower. 

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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.

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