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Wheat rides the trading roller-coaster

Wheat and the rest of the grain complex ran into selling first thing Monday morning, and the pressure didn’t let up all week except for wheat which managed to hold its gains on Friday. Most of the week’s selling centered on soybeans, with the harvest showing better yields and larger production. Corn also felt the pressure of harvest and paltry export business.

While wheat got caught in the downdraft of row crop selling, it still managed to hold the trading range lows that have held so well over the last two months. This is a market that is showing impressive ability to break away from the negative corn action and trade its own fundamentals, which at this point are mostly bullish.

The Russian production story isn’t ready to be put on the back burner just yet. We all know that the Black Sea grain production is down significantly this year but they’ve been aggressive sellers of wheat nevertheless – at surprisingly low prices relative to the rest of the world.

Amid constant speculation of a Russian export embargo like they imposed two years ago, the government sought to calm markets by insisting that no export bans would be implemented – at least through the end of the year. 

However, on Friday the Russian Economy Minister suggested that due to rapidly increasing wheat prices and rising inflation, their government may now consider curbs on exports. The timing of the restriction wasn’t discussed but we know that exporters have made commitments through late November.

Now it looks as though Russian exporters may have overextended themselves as rumors swirled of their struggle to find enough wheat to fill contracts. Not only that, the prices they offered in the contracts are well below what they now have to pay in the domestic market to originate the wheat, which would lock in big losses. There were hints in the marketplace that exporters would try to re-negotiate prices in the contracts or default on the delivery. 

We’ll definitely keep a close eye on this story.

The other major story continues to be weather woes in Australia, where rainfall has been much lighter than normal and production cuts are coming weekly. Estimates for total wheat production are now slipping below 20 MMT, far below USDA’s last estimate of 26 MMT. Light rains are forecast but so far none have been able to alleviate the shortfall, which is affecting both the western and eastern production regions. 

Here in the US, moisture is still very short in the western plains but much better the further east you go. Planting season is underway and high insurance guarantees will encourage big plantings. At this point, it’s a wait-and-see situation to see what kind of emergence we get and what the winter delivers. Moisture conditions for soft red wheat in the Midwest are much better and the early corn and bean harvest will free up the acres to get planted. 

Next Friday we’ll get the quarterly stocks and small grain production summary from USDA. The stocks report will be the ending stocks estimates for corn and soybeans for the 2011/12 marketing year, and will also show wheat disappearance for the first quarter of its marketing year. 
The small grain summary will be the final production numbers for wheat and other small grains. Informa released their estimates on Friday, with all wheat production at 2.273 billion bushels, just 5 million higher than USDA’s last estimate of 2.268 billion. 

The trade feels pretty comfortable with US wheat production, but we could see some fireworks with the corn and beans stocks again, which has been the case for the last several stocks reports. The constant struggle to not include new crop corn with old crop stocks continually leaves the market wondering just how much corn is really out there. 

Technically, wheat managed to find support once again at its trading range lows, but corn and soybeans dug a little deeper than their support levels. With the late-week bounce, Chicago and Minneapolis wheat finished right at the minor resistance, with Kansas City managing to push just beyond it. If Chicago can maintain this momentum, then it has a good chance of testing the trading range high next week. That range has been very well defined and so for now we’ll look for that target.

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