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Wheat demand closely watched

While weather will be the key driver of price action for the next several weeks, demand fundamentals are remaining firmly in the spotlight as well. Domestic demand for wheat has surged in the last few weeks. After the short corn crop last year, railroad companies are finding themselves with way too many empty cars sitting around. Thus, they are offering big discounts for wheat freight and it’s paying off. Several trains of soft red have been reported to arrive in the US Southwest and even over to Idaho. At the same time we’re still seeing plenty of hard red moving into feed channels. There are also a handful of ethanol plants that have included wheat into their blends.

Exports have picked up the pace recently as well, but last week's sales were much lower than expected. The trade has gotten used to big sales and last week's expectations were a robust 800 TMT – 1.1 MMT. But sales only came in at 573 TMT, which in most weeks would have been considered a good number. It’s all relative. We’re still behind the pace needed to reach USDA’s projection; we currently are sitting at 89% sold with the 5-year average at 97%.

India continues to be the thorn in our side as they aggressively move wheat. Last week, they sold 350 TMT at around $306/ton, staying above their stated threshold of $305 which has basically created a floor under world prices. The US can compete at those levels in many markets, but freight takes us out of key markets in the Southeast Asia. 

It was also reported last week that India is negotiating with Egypt for wheat sales. The week prior Egypt was also trying to work out a GSM deal with the US. Egypt will have to do something soon, however, as the citizens aren’t thrilled with the recent bread rationing being imposed upon them and cash is running low.

Cash basis levels are the highest since last summer, with hi-pro’s leading the charge. No doubt that foreign buyers who need hi pro wheat are watching the movement into feed channels, and getting nervous about protecting those supplies. I would expect that high quality wheat basis will continue to hold strong to keep it out of feed rations. Normally, winter wheat basis peaks in early May while spring wheat basis peaks in early June.

Technically, wheat appears to have stalled at minor resistance and is due for a pullback. That said, I would think that for now, the lows put in in early March should hold in the short term. There’s a lot of growing season left so let’s give the seasonal pattern some time to work.

An early week rally faded as time wore, with forecasts of moisture and disappointing export sales taking the wind out of the bulls’ sales. Wheat has been grinding higher for a few weeks now, and appears to be on the fringe of pricing itself out of foreign markets. Weather is also becoming the focal point of traders, and so far it’s been just good enough in the plains to keep a lid on prices. 

Rains/snows are forecast through the weekend across Kansas and Nebraska – as are very cold temperatures. Markets initially built in some weather premium early in the week, but didn’t hold those gains very well. Traders always take a step back when they hear ‘frost’ damage. We hear it every year but it seldom manifests into a real problem. So we’ll see if this year is different.

The moisture that will accompany the system is getting more attention and creating a renewed bearish atmosphere with those same traders pointing to the many years when fall/winter dryness fears were quickly squelched with spring rains. That certainly seems to be the case so far this year. 

That said, while winter wheat weather appears to be okay at the moment, the cold and snowy conditions still lingering in the Midwest are amping up concerns of corn planting delays in the Midwest, offering some support to the corn market.

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