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Wheat holds important support price

The week started with more waves of fund liquidation, much like we ended last week. The new regulations that will require swaps trades to be counted as part of total futures positions and subject to position limits have prompted funds to liquidate positions, even though the actual rules implementation was given more time.

Chicago wheat slightly broke the range lows while KC and Minn held. Once the blood-letting was over, prices picked up quickly with wheat actually leading the way higher. Demand perked up once it looked like the selling pressure had subsided with several countries issuing tenders – some for quick delivery. 

World export activity has definitely surged the last week or so, and the US is capturing a respectable piece of the business. Sales the previous week at 410 TMT were the highest in a month and above even the trade estimates. But the biggest sales news was China’s purchase of Canadian hi-pro spring wheat; quantity was unknown for sure but estimates ranged from 300 TMT up to 1.0 MMT.

There was a sale of 233 TMT of US wheat sold to unknown, which helped push wheat prices higher early on Friday; unfortunately, those gains slowly faded throughout the day.

Ukraine’s announcement early Friday that they were banning exports as of Nov. 15 also helped support wheat early, even though it wasn’t much of a surprise. The bigger question still remains if Russian exporters can fulfill their commitments as those contracts come due through late November.

Wheat was also supported by the ongoing weather issues in the Southern Hemisphere. We’ve watched Australia’s crop deteriorate through much of the growing season, and now as it matures yields are pretty much set. It’s been a disappointing year for many Australian producers, with total production estimates in the ballpark of 20 MMT, a 30% drop from last year’s whopper of 29 MMT.

Argentina could also be barreling toward troubles as well with just the opposite problem of Australia. Persistent rains throughout the growing season have led to disease issues and their government is acknowledging that yield declines are likely if the rains continue. With harvest just around the corner, more rain is the last thing they need.

Adding to the mid-week rally was the Argentine’s government issuing new requirements from their exporters to ensure taxes get paid and the request for several years of documents. All exports out of Argentina have effectively been shut down while those doc’s are rounded up and any back taxes get paid. Needles to say, exporters aren’t happy and are resisting the new requirements.

In the meantime, ships loading in Brazil are also getting backed up and reports suggested that Brazil wouldn’t be offering any more soybean until new crop is available in Feb. Forward soy sales from Brazil were running about double the normal pace for this time of year. After getting trapped last year with too much sold and a short crop, farmers are likely being more careful this year, even with larger plantings and good weather so far.

The corn market also saw a nice bounce, following the lead of strengthening basis across much of the Midwest. Now that harvest selling is over, end-users are having difficulty originating enough aflatoxin-free corn, creating an impressive surge in demand in some regions where the toxins were not a problem. If corn continues to move higher, wheat will certainly follow along.

Technically, wheat dodged a bullet this week after jabbing the trading range low but managing to quickly bounce back into the range. We had a nice reversal up for the week but topside resistance will be the last swing high just above Friday’s high and then the trading range high. It’s been very difficult for wheat to sustain rallies, and Friday’s deflation was a good example. 

However, the simple fact that wheat couldn’t hold the sell-off and quickly moved back into the range suggests that the supports are very solid. The problem is that each swing high is lower and lower, bringing resistance lower as well. I still look for wheat to eventually test at least the range highs, with a good chance of taking them out to complete the final leg up. However, patience is wearing thin.

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