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Wheat prices find stability

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.

Speaking of record exports, Australia is about to come online as well. Their growing season so far has progressed very well and they are on track for near record production and record exports, which should move into the pipeline in just a few weeks.

The Europeans, too, have had a slow start thanks the Russians. While much of their normal market has already been taken they will nevertheless make their presence known throughout this marketing year.

Weather is still a factor in price action, albeit more of a minor factor for now. Winter wheat plantings here in the US southern plains have been slow and into dry conditions. Projections are surfacing that about 20% of the hard red winter wheat plantings will not be well established before heading into dormancy. Soft red plantings could be down as well, with much of the eastern Midwest seeing delayed corn harvest and slow plantings. NOAA reported this week that the strengthening LaNina weather event will likely keep the northern plains colder and wetter than normal, with the southern plains warmer and dryer than normal. We’ll see what happens, but it looks like we’re going to need ideal spring weather here in the US.

Ukraine has also run into dry winter grain planting conditions, and projections are that up to 1 million hectares will not get planted at all, with another 1.5 million poorly established. We also hear reports of dry planting conditions in northern France and southern UK. That region was dry much of the early growing season this year, but late rains came just in time for near average yields. 

Technically, the sideways pattern of the last three weeks has pulled momentum indicators out of oversold territory. But the inability to sustain upward moves does suggest that the buyers are not all that enthused. My guess is that we’ll still get a test of the recent lows within a week or two, but I don’t expect another major leg down. My expectation is for a trading range to develop over the next several months.

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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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