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Weather drives February wheat

Weather, even in the winter, is still driving wheat prices. After chopping around for much of the week and getting a strong start on Friday, prices buckled after the mid-day weather forecast called for rains in the central plains.

The market was already in a shaky position after Thursday’s export sales were lighter than expected and less than the average needed to catch up to USDA’s projections. But poor weather issues in South America have been supporting corn and soybeans, and offering spillover support for wheat for the last couple of weeks.

Corn and soybeans started to pullback first on Friday after Informa released their latest South American production estimates, casting a slightly negative slant to the row crops and removing the support factor for wheat. The outlook for rain in the 6-10 day forecast for the US central plains brought out heavy selling and set off stops in the process.

If weather has this much influence during dormancy, just wait until spring when it actually matters. The bottom line is everyone knows the dire moisture profile throughout hard red winter wheat country and the importance of timely and sufficient rains when we break dormancy. 

But there are those who believe that the rains always come and will position themselves that way until proven wrong. It is worth pointing out that more than one climatologist is calling for continued warm and dry conditions throughout the plains well into the spring time frame, so one should be cautious about getting overly bearish at this point.

That said, from an old crop supply perspective, the world has found a new supplier – or should we say, spoiler. India has come onto the world market like gangbusters, infiltrating far reaches of the globe that a few months ago seemed all but impossible. They’ve managed to compete head to head in the wheat export market. It is primarily for feed wheat but nonetheless they’ve been much bigger sellers than expected.

Now with their sixth record wheat crop in a row about to be harvested, they need yet more storage and are preparing to ratchet up their sales volume and speed. I think it’s safe to say that India has almost single handedly kept wheat prices from surging higher after the poor production seasons of the Northern and Southern Hemispheres last year, and we might be staring at another round of pressure here in the near term as Australia tries to retain its customer base. 

February tends to be a weak month for wheat prices anyway, usually putting in a seasonal high around crop report time, but after Friday’s action maybe that high is already in. India could well be the catalyst for that seasonal break as they pick up the pace of sales before their harvest starts in late February. If prices manage to rally into next week’s crop report, it looks like selling that rally would be the position to take – at least until we get into late Feb.

As usual, once we get into the month of March, all eyes turn to the production season and it’s a whole new game. Until then, we deal with possible moisture that might fall and still be there in a month; and of course, the export pressure from India who could turn out to be a major exporter this year. Go figure.

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