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Wheat slips on poor exports

Wheat markets were down for most of the week, as weather forecasts maintained their call for a shot of rain to move through the central plains this weekend. Weakness in the corn market and concerns about USDA lowering wheat exports in the monthly supply/demand report added to the negative tone.

On the positive side, however, we heard plenty of chatter about potential business with none other than Russia, who last week removed their import tariff and announced that they would likely be importing wheat soon to alleviate tight stocks and record high wheat and flour prices. China also was included in the chatter about impending business as their fears mount about winter kill after the harshest winter in 30 years. 

Meanwhile, last week’s export sales showed another week of slowing sales, and putting us further behind the average pace needed to reach USDA’s export projection. We continue to see aggressive competition from India and Australia.

The supply/demand report was released on Friday, and actually held a slightly bullish surprise for wheat. USDA left exports alone and increased feed usage again, this time by another 25 million bushels. Ending stocks were down 25 million bushels to 691 million, lower than the average estimate of 728 million. World wheat end stocks were left unchanged after minor adjustments here and there. They chose to leave production estimates alone for Argentina and Australia, which leaves them higher than most trade estimates.

As expected, corn exports were lowered by 50 million bushels but industrial usage was increased 20 million, so ending stocks were only increased by 30 million to 632 million bushels, 13 million higher than the average estimate. World corn production and end stocks were both raised 2 MMT. Argentina saw a 1 MMT drop in production, slightly less than the average trade estimate. Brazil’s corn production was increased 1.5 MMT, up just slightly more than the average guess.

Soybeans also had a mildly bullish report for US numbers, but generally neutral for world number. USDA increased the crush rate by 10 million bushels, taking end stocks down 10 to 125, slightly less than trade estimates. World production and end stocks were left largely unchanged, with a 1 MMT increase from Brazil offset by a 1 MMT drop from Argentina. 

The soy complex traded sharply lower following the report on disappointment that USDA left US soybean exports unchanged, considering the torrid pace of sales we’ve seen so far this marketing year. There is apprehension in the air about the reliability of some of those sales actually being delivered, particularly the recent sales to China. If Brazil can work through their backlog of loadings and deliver on time to China, then it is very likely that China will cancel several of their recent US purchases. 

Now that the crop report is behind us, we’ll get back to focusing on the 

weather as we approach spring and breaking dormancy. Normally, this time window of early February is one where wheat puts in a high and then turns lower into the ‘February Break’. We could hardly call this week’s activity a rally from which we’d get a pullback. But then, the seasonal haven’t worked for a few months now, so it’s anybody’s guess. 

Weather remains the primary topic of conversation and as we approach late Feb/early March, it will increase in urgency. But until then, it’s still just too early to make a bet either way on winter wheat production in the southern and central plains. 

For now, the January lows should offer strong support which should hold for now, until we get a better look at winter wheat conditions in the month or so. If sales materialize to either Russia or China, prices would likely see a strong rebound.

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