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Wheat finds support

Wheat markets spent the early part of the week following through to the downside, after last Friday’s sweeping reversals lower. Prices finally stabilized and bounced into Friday, but we were still slightly lower for the week.

The sell-off over the last few weeks has definitely stoked demand worldwide with the U.S. also seeing an uptick in business. Countries that had moved to the sidelines during the summer’s rally are finally coming back to the market with a great deal of pent up demand and appear to have established at least a temporary bottom in the wheat market.

That pent up demand is being met with aggressive selling out of Russia, with what little they have available to export. Despite the Russian government’s insistence that they will not impose export restrictions at least through the end of the year, the market just doesn’t quite believe that that will be the case. 

Now with dry weather hurting their spring yields, the market is even more nervous about a change of heart from the government. Both buyers and exporters appear to want to get as much business done as quickly as possible before any potential restrictions are in place. It is worth noting that SovEcon projects that at this rapid export pace, Russia will be out of wheat by November anyway. They also reported this week that on-farm grain stocks in Russia were the lowest since 2006, with on-farm wheat stocks at the lowest level since 2003.

Wheat harvest is progressing across the Northern Hemisphere; most regions have had good harvest weather recently, but earlier rains did create some quality problems in northern Europe. While plentiful, high quality spring wheat here in the US and Canada will likely keep protein premiums in check for now, down the road values for higher quality wheat could break away from the lower quality wheat, particularly if wheat see a bigger draw into the feed channel.

This would be particularly true if Australia can’t produce their typical volumes of good quality wheat. At this point, Australia is a mixed bag; the east looks to be off to a good start to their growing season while the west and far south have had enough dryness concerns to start talking about yield losses. The market is especially concerned about the developing El Nino, which usually brings dry weather to Australia.

In Argentina, recent rains have been very beneficial for winter wheat development and most regions of the country look good. Planted acres are down so production is also expected to be down, but at least for now it looks like they are off to a good start.

And speaking of good starts, while the drought here in the US has parched the plains and Midwest this summer, weather conditions over the last couple of weeks have improved significantly for much of that region. Forecasts for the southern plains call for good soaking rains over the next few weeks. We already expect to see huge plantings this fall, and any moisture will be helpful getting winter wheat established before dormancy. It’s also worth noting that northern Russia has had very nice rains recently, making for good planting conditions for a large percentage of their winter wheat region. If rains verify and we get those big plantings, we could be looking at huge production next year, which makes getting some sales on the books for next year’s production seem like a good idea.

Near term, it looks like old crop wheat futures could have made a bottom and is poised to take a run at the recent highs. It will be tough to sustain a rally, however, unless we see more production issues – either with the remaining harvest in the Northern Hemisphere or continued dryness in Australia. 

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