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.