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Weak wheat rally stalls

10/28/2011 @ 2:23pm

Wheat held its own for much of the week, with price action continuing to find resistance at last week’s highs. A brief sell-off mid-week was met with aggressive buying on Thursday after the European Union announced a debt relief agreement that the market clearly liked. Equities and commodities moved sharply higher in unison, but the euphoria was short lived. By Friday, wheat’s attempt to break into a new high for this move was met with more selling in yet another very choppy trading day.

Export sales were disappointing last week for wheat and were really disappointing for corn and beans. Wheat sales at 317 TMT were at least within the range of estimates. Corn and beans sales at 361 TMT and 254 TMT, respectively, were both below their ranges of estimates. 

Wheat sales have the familiar problem of intense competition from around the globe, which is likely to continue throughout the marketing year. Egypt once again bought wheat from Russia this week, in what has become an all too familiar story. They took 120 TMT at $259/ton cost and freight from Russia; Ukraine was the next lowest offer at $7/ton over Russia; France and Argentina were next in line but still $30 over Russia. The US didn’t even present an offer, which has also become a common story. Traders estimate that US wheat prices delivered into Egypt are still $30-40/ton over Russian offers. 

For corn, however, we’re seeing old faces reappear onto the export scene. Ukraine and Argentina have both stepped up corn sales recently, the result of a sharp increase in production and removal of export barriers. Even though most of the US corn grown now will be consumed domestically, largely due to the increase in ethanol production, the emergence of significant competition for corn exports has added an element of negativity for corn that could easily spread to wheat. 

Speaking of competition, Australia is about to begin harvest of what could be a record wheat crop, and the trade is fully expecting them to have record exports as well. Weather is still in play here, however, as forecasters suggest that the strengthening LaNina could once again bring rains during the harvest season. 

After last year’s disastrous, rain-plagued harvest, the market will not rest easy until the wheat is in the bin. That said, Australia isn’t wasting time getting some sales on the books. China announced that they’d bought 500 TMT of Australian wheat over the last few weeks. Given the freight advantage that Australia has into Southeast Asia, it’s safe to assume that they will be a much larger presence in the export market within a few weeks.

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