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Wheat life after the Report

Leave it to a crop report to create an attitude change in the grain complex. Friday’s plantings and stocks report abruptly changed the direction of price action coming into the reports. In particular, wheat and corn had been on the ropes as we headed into Friday’s reports, but the bullish numbers had traders quickly re-establishing the longs they’d given up earlier in the week.

A quick look at the numbers: Total wheat plantings at 55.9 million acres were 1.5 million less than trade estimates. Spring wheat was the biggest surprise at only 11.976 million, 1.34 less than estimated. North Dakota seemed to hold the most uncertainty coming into the report, with many suggesting that producers would opt for corn rather than wheat – and they were right. ND will plant 150,000 less acres of spring wheat while doubling their durum acres to 1.5 million. Many of those added durum acres are simply what couldn’t get planted last year due to flooding.

Corn plantings at 95.9 million were 1.1 million more than expected. North Dakota will increase plantings by 52% to 3.4 million. We will see record corn acres in Iowa, North and South Dakota, Minnesota and Idaho. Corn is certainly king.

Soybean plantings were 1.4 million less than expected at 73.9 million. All of the major producing states will see a drop except for Illinois, which is projected to increase plantings by 1%.

The stocks report was also bullish for all grains. Wheat stocks at 1.2 billion bushels were 22 million less than expected. Soybean stocks 15 million less than expected at 1.372 billion; and corn stocks were 6.009 billion, 150 million less than expected.

The fundamentals of wheat appear to be increasingly bullish. World wheat production this year is highly likely to be down from last year, at least in the major exporting nations. Winter kill, and now dryness, issues in Europe have already taken a toll on the very young crop there. We already know that Ukraine is a bust, with many of those normal wheat acres going to corn. 

Russia doesn’t have much of a story yet as their wheat is still trying to break dormancy. They did report some winter-kill issues in their southern region. China is off to a good start, largely due to good conditions last fall. However, we’ve been watching dryness issues there as well, but so far they are looking fine.

Here in the US, the southern plains winter wheat is also off to a great start, but 2-3 weeks early makes it very vulnerable. The forecasts do call for two cold fronts to move through the plains in the early part of April. Until we get at least into the middle of April, the threat of frost will be an issue.

The stocks report showed that wheat continues to be pulled into the feed channel, and as long as corn prices stay high, will likely stay a major feed ingredient. Therefore, while wheat will obviously trade its own fundamentals, what’s going on in the corn crop will continue to have a major influence as well.

Wheat prices had been pushed down to their trading range lows with persistent selling all week, only to see prices rally all the way back to the trading range highs in just one day. Wow! Clearly, this trading range is well established as prices have been stuck within it all winter. 

However, it is unlikely that the trading range will contain prices much longer. The velocity of the price action on Friday suggests that there is much more buying power in this market, and it’s only a matter of time before the top side gets taken out. 

I would expect Minneapolis to lead the way from a fundamental standpoint. It is important to remember, though, that once hedge and index funds decide wheat is a bull market, Chicago can quickly take over leadership. That said, we certainly can’t ignore Kansas City which could race away on its own if one of the cold events actually does some damage.

So, take your pick. It appears to me that long term lows are in, and I think from here on out, pullbacks will be well supported. Ultimately I believe that Minneapolis will be the leader, particularly if it stays dry in that region.

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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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