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Wheat prices are stagnant

There was one attempt to rally wheat this week, but as usual, it failed to hold any momentum. Strong world demand and threatening weather encouraged the bulls, but the bears weren’t ready to abandon their long-held negative bias.

 

The long downtrend has finally reached a price level that is clearly stimulating world demand, however. There was a total of over 2 MMT of tenders put out this week by almost every major buyer. China is shopping U.S. and/or Australian wheat. Saudi Arabia put out a 660-TMT tender on Thursday with results expected on Monday. Now that the Southern Hemisphere’s harvest pressure is behind us, it looks like buyers are lining up to get some product on hand.

 

The U.S. has become much more competitive with improving freight rates and availability along with a declining dollar. We did manage to compete in the Egyptian business the last two weeks, but most other major sellers have come down to our price.

Export sales from last week were within expectations at 413 TMT. Brazil showed up for 112 TMT of hard red winter. With Argentine production down hard again this year and their government and economy in a tailspin, it’s likely that Brazil will be forthcoming for much more U.S. wheat.

One other supportive factor this week was the weather – again. While normally the month of January doesn’t bring too much concern about weather for wheat, this year the numerous waves of very cold weather moving across the largely snow-free Plains have some crop watchers starting to add up potential winter-kill acres.

 

Making the situation more interesting was that the previous week of very warm temps in the central Plains was thought to have encouraged some wheat growth. With this sudden drop to very cold temps, those wheat fields would certainly be at risk. There may be more risk in the soft red areas of the southern Midwest, where wheat is much less hardy and temps have been even colder.

It’s hard to get excited about winter kill in the first place, considering wheat is practically indestructible, but it is possible that these cold snaps are indeed doing some damage. That said, it is very unlikely that the market would be able to hold any rally based on that until we see the wheat confirmed dead after it has broken dormancy. That is still weeks away.

We also see an extreme cold snap moving through Eastern Europe into the Black Sea region, but most of that area has adequate snow cover – except for Southern Russia, which is a large winter wheat producing region. Obviously, the market will wait for more evidence there as well.

Transportation has also slowed recently. Mississippi River traffic has slowed significantly because of ice and rock formation clearing. Railcar and engine shortages are making grain movement very difficult and expensive for northern Plains and Canadian producers, with much of the capacity used up by moving petroleum products. At the same time, vessel lineup at the Gulf is much higher than a year ago, and wheat is getting an increasing percentage of the loadings. 

Still, prices are stagnant. The basing pattern of the last couple of weeks is still holding, but rallies are anemic. Seasonally, prices typically rally into early February and then see pressure into late February. The trend would certainly support that kind of price action this year.

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