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Wheat Experiencing a Robust Market

03/24/2014 @ 11:47am

The wheat market is off to a fast start Monday. It's a continuation of last week, reaching a nine-month high before appearing to sputter with a reversal down on Thursday that was confirmed on Friday. Fund buying, weather, and Ukraine are the drivers in this suddenly robust market.

We knew the wheat in the Plains would be in rough shape after the brutal winter. But as the crop tries to break dormancy, moisture conditions remain very short and above-normal temps along with high winds are adding to that stress. 

Forecasts called for at least light rains in some of the dry areas this past weekend, and light was about all they got. This next week looks like drier, warm, and windy conditions are on the way before a good chance of rain early next week. If next week’s precip falls short, this wheat crop will go downhill quickly as it heads into the key growing month of April.

Ukraine is having two problems (at least). As if geopolitical issues weren’t enough, the dry conditions that prevailed through the fall and winter are extending into the spring. Temps have been above normal for over a month, and wheat is greening much ahead of schedule, making it more vulnerable to cold that could surely still be a factor this spring.

Dry pockets of central Europe are also catching the market’s attention. Southern Germany into Poland has had an extended dry period, and the area appears to be increasing. The major wheat areas are just to the north and west of this area of dryness, and the market will be watching that very closely. 

Taking a look at other major growing regions of the Northern Hemisphere, we see that China’s wheat crop is off to a good start and moisture appears to be adequate in most regions. India has recently had some stormy weather that apparently did some damage to their wheat crop. They haven’t said how much of the crop was lost, but we did hear some chatter that they may slow down their wheat exports in response to the damage.

Going forward, the grain markets will be bracing for the very important stocks and plantings reports next Monday. Weather, of course, will be the main driver of the wheat complex.

Technically, the reversal down gives the bear a reason to get short and a place to put a stop. That said, while this market is indeed very overbought and due for a pullback, the upward momentum has been huge, and hedge funds aren’t going to give up their new bullish positions very easily. We could see a 50- to 60-cent retracement that would test recent breakouts and old support levels, but that’s probably all we’ll get unless weather turns major bearish. Look to cover shorts at the lows from last fall, especially if we get there in the next couple of weeks.

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