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Wheat prices find stability

10/24/2011 @ 6:25am

Wheat traded in an upward, choppy pattern this week, finding strong spillover support from a corn market that has steadily moved higher all month. In addition, while the wheat market still has plenty of headwinds in the export arena, there is increasing concern about poor planting conditions in several regions of the world and the growing probability that winter wheat production next year could already be running into trouble.

The support from the corn market has certainly been impressive, and wheat’s ability to keep up with surging corn prices suggests that the long standing price inversion of corn over wheat may have seen its limit. Even though USDA lowered projected wheat feeding for this marketing year, there is obviously still very good demand for wheat feeding. Higher corn prices will only add to that demand. 

Strong ethanol profits and increasing overseas demand for US corn is providing a solid base of support for corn prices and wheat prices are coming along with them. After the month-long slide during September that saw wheat lose a good 25% of its value, it appears that we could be carving out some seasonal lows as the month of October has seen steady to higher prices.

Much of the fundamental pressure for wheat during the summer/early fall was due to Russia’s extremely aggressive export program. This week we heard reports of Russia running into bottlenecks with delivering on their contracts. There is also concern that they may run into more problems once cold weather sets in, making transportation either much more difficult or impossible. This is on top of the Russian government reminding exporters the week prior that export tariffs would be imposed if domestic prices rallied too much or if exports got too high.

If Russia’s exports are about to slow down, and there is good reason to think that they will, that at least takes away the constant pressure for world prices. However, it doesn’t necessarily mean that a bull market is around the corner.

Indeed, what it likely means is that everyone else will finally be able to surface with their exports. Ukraine, for instance, not only finally eliminated their export tariff but their exporters will also receive a value-added tax rebate, making them much more competitive in the world market. With record grain production and record grain exports projected, they certainly needed to get in the game.

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