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Wheat fends off pressure

This week, the wheat market seemed to stall and looked poised to resume its longer term downtrend. But downward momentum was limited, and after two days of selling pressure, the market snapped back with a strong close on Friday.

Wheat prices initially tumbled early in the week on news that Egypt snubbed us with a cancellation of 2 cargoes. The next day they issued another tender which resulted in them buying 235 TMT Russian and 60 TMT Romanian. US prices were a good $25/MT above the winning offers.

More negative news this week stemmed from Argentina releasing another 500,000 mt of wheat for export. While on the surface that may be judged negative, when we look at the bigger picture we see that they’ve only released 1 MMT so far this marketing year, far below the norm. 

Also, the European Union has quietly and steadily remained a major force in the export market. This week, they released a hefty 932 TMT for export, bringing the marketing year-to-date total to 20.2 MMT, up 54% from last year’s 13.1 MMT at this time. They haven’t made much noise this year in the world trade, but they’ve definitely been active. 

Weather is still a dominant factor and offset much of the negative fundamentals this week. Another cold front moved into the plains, posing another potential threat to wheat plants that have had their share of stress this winter. There are also concerns about wheat in the lower Midwest, where most of the snow cover is gone, but the cold temps are forecast to dip deep to the south there as well.

The relentless cold also continues to disrupt northern plains and Canadian grain transportation. Oats recovered from its spike high reversal from earlier this month and soared higher again, putting in new all-time highs. Spring wheat also was tugged higher but that market isn’t hyperventilating like oats. The bottom line for the northern tier crops is that delays in marketing now just create more pressure down the road as the time window gets smaller to move old crop supplies. 

The political unrest in Ukraine has fired up again, threatening grain exports out of a major competitor, and certainly added an element of strength to the corn and wheat markets. We did see corn export sales take a jump; likely buyers playing it safe in case Ukraine can’t deliver on commitments. 

We’re also seeing a surge in fund buying; they’ve gone from a large net short in corn to an aggressive long position in just a few weeks. Soybean buying has been non-stop for them with the net long position getting bigger. Even wheat has benefited from the bullish attitude with the large net short position significantly smaller. 

US exports last week were impressive at 565 TMT, above the high end of estimates. Sales were spread out among several buyers. It was interesting to note that wheat has actually fallen behind the pace needed to meet USDA’s projections. It’s only 2% behind, but after being ahead of the pace all marketing year, we see that the latest increase in export projections in this month’s supply/demand report has finally brought the numbers in sync. 

While crop forecasters continue to ratchet down (quickly) Brazil’s soybean production prospects, they are increasing the wheat crop outlook. Trade chatter this week was that Brazilian farmers will increase plantings about 13%, potentially producing a record 7.3 MMT crop. They could sure use a good year where they don’t have to rely as much on Argentina or outside markets.

As we head into March, the typical seasonal pressure tends to wane and normally we get some weather premium built into prices. But the normal February Break was pretty much non-existent this year, particularly surprising considering the longer term downtrend. Is the trend changing?

Wheat in Kansas normally breaks dormancy around mid-March. Temps have been all over the place this winter and crop stress has definitely been an issue. The crop needs good spring rains with drought conditions engulfing all of the western plains and turning dry in the east. From here on out, price action will primarily depend on Mother Nature and we’re already off to a rocky start.

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