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Wheat prices fall below expected levels

Wheat markets broke below the key trading range lows on the front months, taking out long term support.  Price fell particularly hard after USDA lowered projected exports for the third month in a row and raised ending stocks, both significantly more than the trade expected.

While export sales have been improving over the last few weeks, even with the reduced projection the US is still notably behind the normal pace. At half way through the marketing year, we’re only 60% sold of the estimate where normally we’d be about 77% sold. 

It is expected that US sales will pick up on this sharp drop in prices but the competition will still be there.

The Europeans have been aggressive sellers along with India, filling in much of the business left open by the Black Sea’s exit. Australia has also stepped up recently as their harvest finally picks up steam.

The Argentine wheat harvest is now 42% complete, and the government lowered the total production estimate to 9.8 MMT, down 320 TMT from their previous estimate and 5.7 MMT lower than last year. They also lowered their export projections to just 4.5 MMT, equal to what they’ve already committed to deliver. So, effectively at this point, they are no longer an exporter for this marketing year.

Even with record low crop condition ratings for winter wheat at this time of year, the crop is heading into dormancy and the market will be less reactive to extreme conditions. It’s really a matter of waiting until spring to see what the crop looks like and what kind of weather evolves.

The drivers of the markets during the winter will be the usual ones – how is the Southern Hemisphere harvest progressing, where is the demand coming from and who are the sellers. Argentina’s harvest so far has been a disaster in the making, but the weather is breaking and combining should pick up. Australia’s harvest got off to a slow start but is also progressing well. 

As for exports, competition from the other major exporters will actually be limited; the Black Sea is gone as is Argentina. But India has become a major player this year, with offers coming almost weekly from them.

The Europeans are expected to run out of wheat sooner than normal because of their torrid pace of sales so far; year-to-date sales are at 8.6 MMT and they are expected to export a total of 18 MMT. Australia will certainly be present in the world export market, but their production is down by 30% from last year. When it comes to high-quality wheat, the only players will be the US and Canada.

Europe put out some wheat production estimates for next year, projecting that with an increase in acreage and yields they will see total production up 9% to 134 MMT. They estimated that corn production would increase 16% to 63 MMT.

Technically, the front month charts look pretty negative as prices took a big hit and broke below the long term support of the trading range low. There hasn’t been much of an effort to stage a bounce, either. Soybeans have held very well and even corn saw a nice bounce on Friday, but wheat was only a weak follower. 

There will be plenty of upside resistance now if we can get some rallies, as I expect we will. But the old trading range low will now be major resistance. 

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