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Weather, demand support wheat

Wheat managed to dust itself off following the negative stocks report while corn and soybeans continued to flounder. Weather and demand pulled wheat higher with reports of freeze damage dominating early-week trade and talk of large Chinese purchases supported prices late in the week. 

The fund roll has also begun, and the large short position held by many hedge funds is helping to support the front month as they cover shorts and re-position into mostly the new crop months. Corn is seeing the opposite, with selling in old crop and buying in new, if they wanted to remain long at all. The May wheat/corn spread moved from a small discount just a week ago to more than a 70-cent premium by Friday.

Weather has many on pins and needles as they try to assess freeze damage from last week and not seeing the widespread rains that were forecast and sorely needed across the plains. Now the weather forecasts are calling for more freeze conditions in the central plains mid-week that could do additional damage. 

Informa put out an estimate of winter wheat production this week, factoring in their freeze damage assessment. They estimate that hard red winter production will be 903 million bushels, down 101 million from last year, a 10% drop - some due to lower yields but also with plantings down 3%. They project that soft red, on the other hand, will be up 86 million at 506 million bushels, a 20% increase over last year with plantings up 19%. Total winter wheat is estimated by them at 1.631 billion bushels, down just 14 million from last year. 

Meanwhile, it’s going to heat up in Texas and Oklahoma, with very little rain forecast. Obviously, the extremely low subsoil moisture throughout the entire Great Plains makes timely rains critical, and so far Mother Nature has been stingy in the western regions.

US weather isn’t the only problem. European conditions are far too wet in the main wheat growing regions of the UK and northern Germany and France. UK plantings are down 25% alone, and early spring growth is showing definite signs of winter stress.

The Ukraine issued a report forecasting that spring plantings would be delayed by about 2 weeks, and production would likely be down about 1.5% as a result. Russia is starting to green up and soon we’ll see how their wheat fared through the winter after a shaky start last fall. The southern regions of both Ukraine and Russia are forecast to be dry this spring, which only adds to Russia’s already dry status of the last three years.

Grain quality is making its way into headlines recently. Reports from China continue to suggest that quality in both corn and wheat domestic stocks is highly suspect, with some going so far as to blame toxic corn for the large pig death losses. China did report that they weren’t happy with the baking quality of Canadian spring wheat they’d purchased recently. So when rumors started flying that China had purchased up to 14 cargos of US soft red winter wheat late this week, few doubted that possibility.

In addition, Dutch officials reportedly are warning their feed industry to stop using Ukraine corn due to high toxin levels recently discovered.

The US isn’t without its own toxicity problems, with cash buyers going out of their way to avoid certain pockets of the Midwest which were reported to have problems last fall. It would certainly seem reasonable to expect that quality issues will only intensify as we get to the last of the old crop stocks. With so much of the hard red winter wheat having already moved into feed channels, it puts a lot of pressure on spring wheat to perform.That could be challenge with much of the northern plains still covered in snow and expectations of flooding this spring. Late plantings are all but assured in the eastern half of the northern plains, with a strong possibility of losing spring wheat acres altogether, not to mention losing corn acres as well. Little wonder why soybeans are feeling the bearish pressure.

Export sales were a disappointment last week, with sales of only 315 TMT, down sharply from what we’ve become used to seeing. Less than half was for old crop, with more business flowing to new crop lately. It does raise the likelihood of USDA again lowering export projections for this marketing year, which ends May 31. The next supply/demand report is Wednesday, April 10. Hopefully, our wounds will have healed from USDA’s last pummeling, and hopefully they won’t blindside the market again in this usually benign report.

One last thing, India is harvesting yet another record crop and their recent declaration of a minimum selling price for wheat has suddenly priced them out of the market. Not having any more storage capacity than they did a month ago, they will quickly create the same problems they had been finally resolving with their exports. Apparently they are re-examining their ‘floor’ price idea, and will likely soon remove that requirement, so look for wheat to start flowing out of India soon.

Technically, wheat at least managed to get back above the early March lows after the quick sell-off. Weather will be the driver, and crop conditions are struggling to say the least. It wouldn’t take much more poor weather to really make an impact, but we’ll have to see what evolves. The huge fund short position in Chicago could become a major rally factor if the market starts to run on them.

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