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Wheat holds lows
After putting in a swing high on Monday, wheat markets spent most of the rest of the week under pressure, taking most contracts back down to February’s lows. A stronger dollar, rains/snow in some needed regions and spread liquidation kept up the selling as we came into Friday’s supply/demand report.
However, USDA gave us a slightly more bullish wheat report than we expected and prices saw a quick rally. Corn and soybeans did not get the bullish numbers expected, but after a lower open, they too found strong buying. The day didn’t finish as robust as the open, but we still saw a nice bounce nonetheless.
Corn had an outside day higher, starting out weak in response to the report, but then getting a boost from China buying rumors. Most wheat contracts had a reversal up, finding strength in the report and on the heels of corn. Soybeans look like they just put in a minor spike high.
The ‘China buying corn’ rumors just won’t go away. All week, we heard talk that China’s corn production last year wasn’t nearly as high as the reports say; and that it’s inevitable that China will have to buy large quantities of either corn or feed wheat. They’ve been huge buyers of DDG’s as well, so clearly feed grain demand over there continues huge. If they do come in for more corn, it is supportive for wheat as well.
This supply/demand report wasn’t really expected to be much of market mover, with most traders gearing up for the prospective plantings and quarterly stocks reports on March 30. Informa released their estimates on Friday morning, which contributed to the stalled rally. All wheat acres were 57.7 million, down 150,000 from their last estimate. Winter wheat acres were lowered 400,000, and spring wheat was increased 300,000 from last month’s estimate to 13.8 million acres, up 1.4 million from last year.
Corn plantings were pegged at 95.5 million, up 800,000 from their last estimate. Soybean plantings were estimated at 75.1 million, up 550,000 from their last estimate. The higher planting projections stalled Friday’s rally, with the reality of huge crop potential taking the wind out of the bull’s sails.
Market consultant, Agritel, put out an assessment of cold weather damage to French wheat this week, with wheat seeing more damage; and barley and durum getting a slight upgrade. Originally, it was suggested that there wouldn’t be any damage to French wheat from the extreme cold snap that killed hundreds of people. However, last week, estimates of as much as 1 MMT loss were being tossed around. This week, that number increased to 1.9 MMT on about a 5.3% acreage loss. It was also estimated that another 13% of the remaining wheat acreage saw at least some damage. Winter barley production losses are estimated at 4.5%, and winter durum at 5.5%, both slightly less than originally expected. Most of the lost acres will be replanted to spring barley.
Speaking of weather, the southern plains have seen soaring temperatures the past couple of weeks. Ample moisture in the eastern half has pushed wheat growth way ahead of schedule. This raises the risk of frost damage if we get a cold snap, and there is certainly plenty of time for that to happen. The western plains had drier conditions and wheat isn’t as far along, so they would likely withstand a cold weather event better than the east.
Technically, wheat is testing support levels at the February lows. The tepid close on Friday after a strong open leaves the door open for more selling in the near term. I continue to think that the trading range lows will hold – at least short term. There is just too much potential for weather problems around the Northern Hemisphere and too much feed grain demand for the wheat market to fall apart. Granted, near record world carryout does tend to stifle bullishness, but I think we have to get deeper into the growing season and see what Mother Nature dishes out before we jump on a bearish bandwagon. Any hint of trouble with wheat or corn production and both of those markets are going much higher.
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.