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Wheat finds positive reversal

Wheat markets were under pressure early in the week, only to find strong buying support as some months neared the trading range lows. A strong reversal on Thursday had nice follow through on Friday, and the week finished with reversals higher in all three wheat markets.

Pressure early in the week stemmed from moderating weather in the Europe and the Black Sea area and the long wait before assessing the cold damage, along with negative production estimates from Australia.

Australia estimated that wheat production will be another record high of 29.5 MMT, 1.2 MMT higher than USDA’s estimate and eclipsing last year’s record of 28.0 MMT. They also projected their exports at 22.3 MMT, up 1.3 MMT over USDA and roughly 4 MMT above last year’s pace. To the surprise of some, Australia also estimated that 75% of their wheat was milling quality, much higher than expected considering their wet harvest.

Export demand has picked up the pace over the last few weeks, primarily due to weather issues reducing production of corn and soybeans in South America and more recently winter kill concerns in some regions of Europe and the Black Sea.

For the first time in months, the US secured a sale of one cargo of wheat to Egypt last week. Thursday of this week we sold another 3 cargoes to them, and on Friday sold another 2 cargoes. We’re also seeing business increase for higher quality wheat, not only for US wheat but Canadian and Australian as well. Algeria, Saudi Arabia, Taiwan, Indonesia just to name a few all in for milling quality wheat. 

Some of the jump in business can be attributed to ports in Europe and Russia being frozen and vessels unable to load. We’ve seen traders have to switch origins at the last minute, with many coming to the US - bumping up basis bids for immediate delivery. 

We’ve also seen stepped up buying by China for US corn and soybeans, again mostly due to the productions losses out of South America. In their concern to secure adequate supplies, China inked the largest deal ever for US soybeans by buying 2.92 MMT, mostly new crop. 

Wheat also found support from a report on Friday that Ukraine’s government asked their grain exporters to limit the amount of wheat sold between February and July (the end of their marketing year) to only 1.7 MMT, which the traders agreed to do. 

While the weeks of mid-February tend to be negative for wheat, it is possible that the seasonal pressure is already behind us, particularly considering the sharp rally wheat markets saw by the end of the week. If nothing else, I would expect the choppy price action to continue, given the variety of fundamental factors in the marketplace.

It would seem likely that prices would be limited on the upside by the sheer volume of world stocks, sitting at a record high 213 MMT. We also expect spring wheat plantings to be much higher than last year’s preventative planting drop. Corn plantings are also expected to be much higher, with ending stocks a much more comfortable double this year’s stocks.

That said, the uncertainty of winter kill across Europe and the Black Sea, primarily in Ukraine, will keep prices supported. It will still be about two months before we can really begin to assess the damage. The Southern Plains here in the US continue to be dry, although some moisture is forecast for next week. It is also worth noting that eastern Montana, all of North Dakota and all of Minnesota are very dry, stretching up into Canada. Spring wheat acres may be up, but we still need moisture. 

Corn production will be higher, and soybeans likely higher as well. But the production drop out of South America will offset much of that increase. We already see the demand coming with China’s purchase this week.

For the near term, I would expect wheat to stay within the limits of the winter’s trading range. Once we get into the growing season we’ll see what happens, but my inclination is to not be short.

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This publication is strictly the opinion of its writer and is intended solely for informative purposes. It is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named.  Information is obtained from sources believed to be reliable, but is in no way guaranteed.  Futures and options trading always involve risk of loss. Past performance is not indicative of future results

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