Wheat fails at range highs
Wheat rallied for most of the week, pushing up to the trading range highs in Kansas City and near those highs in Chicago. But a bearish crop report quickly quashed the rally with an outside day lower on Friday.
USDA increased ending stocks for wheat, corn and soybeans more than trade expectations as well as an increase in world wheat stocks when the trade had expected a drop. The initial reaction was volatile and then sellers stepped up. Buyers managed to get wheat back to unchanged mid-day but couldn’t keep the momentum and the selling once again took over, pushing wheat to new lows for the day as we headed into the close.
Much of the support this week came from the ongoing production problems in Argentina and Australia and increasing concerns about winter wheat conditions in the Northern Hemisphere as it settles into dormancy. Not much changed in the Southern Hemisphere with Argentina fighting rains and disease while Australia finally gets rain – during their harvest.
Here in the US, winter wheat conditions are rated 39% good/excellent and 19% poor/very poor; both are record lows for this time of year. Crop watchers estimate that one-third of the US winter wheat crop is heading into dormancy poorly established.
Northern Europe is struggling to get the crop planted due to excessive moisture. Russia reported this week that 20-25% of their winter wheat saw poor germination this fall. France estimates that only 64% of the crop is planted so far compared to 88% last year. The United Kingdom will reportedly have to import 2 MMT of milling wheat this year following their disastrous, rain-plagued harvest.
New crop futures contracts for winter wheat have been pushing into new highs for several days, but Friday’s outside day lower give us a key reversal that we can’t ignore. Despite the current poor conditions, the crop likely won’t get any worse as it sits out dormancy unless we get a major cold snap with no snow cover. But even then, that potential damage wouldn’t be known until spring. This key reversal gives a good reason to get some/more sales on the books.
As for old crop, the constant drag of lower soybean prices and stagnant corn prices continues to dampen any bullishness of current wheat fundamentals, not to mention poor exports. Europe’s prices have soared into new highs, gapping above their trading range but US prices just can’t mirror that enthusiasm. The bearish report didn’t break the European market, but threw a big wet blanket on US prices.