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Wheat stalls at resistance

It was another volatile week, as wheat initially slowly ground its way lower while Minneapolis continued to move higher, with most of the action in the September contract. 

However, forecasts for rains in the plains and pressure in the corn market pulled wheat sharply lower on Thursday, only to see it bounce back up on Friday. By the end of the week, Kansas City and Chicago wheat showed a weekly reversal down while Minneapolis just kept pushing higher.

Much of the volatility can be traced back to corn, which continues to have significant influence on wheat prices. As we’ve watched the corn crop struggle through its growing season and prices move higher as a result, wheat has pretty much kept in step with corn’s price movements. With the spring wheat crop having its own troubles, Minneapolis has led the way higher when prices are strong, and been the most resistant to moving lower. 

While Minneapolis may be the strongest of the wheat futures markets, the high quality premiums in the cash markets have all but evaporated over the last few weeks. As spring wheat harvest moves quickly along, we’re seeing much of the new crop being high protein. End-users will blend that with last year’s low protein crop, effectively making this year’s supply of milling grade wheat much higher even though yields were lower. 

The big break came when forecasts suggested some much-needed rains were headed to the central and southern plains, which would help with winter wheat planting. There were also some rumors that Canadian feed wheat was making its way into the southern plains feedlots. That speaks volumes about the worldwide availability of wheat to substitute for corn, and begs the question of just how much further corn can rally if wheat feeding is that widespread.

That said, we continue to get projections of low corn yields which will ultimately lead to extremely tight corn supplies, so corn continues to be well bought on pullbacks; and of course that lends support to wheat. So, while wheat is struggling to maintain the upward momentum as it looks forward to an entire marketing year of stiff export competition, the strong corn price keeps it underpinned.

The Southern Hemisphere’s wheat growing season is getting underway, with Australia getting some key rains in the east over the last couple of weeks. They are off to a strong start with early production estimates ranging from 23 – 26 MMT, compared to last year’s 26 MMT. It is worth noting that Australia has a large carryover of feed grade wheat that can easily move into the southeast Asian markets, if it weren’t for Russia already selling their own there. 

Argentina is also off to a good start, but their government reported this week that dry conditions are beginning to set in and rains are needed quickly to prevent crop stress. While Argentina has long been a major wheat producer, in recent years they’ve not been a major world exporter as most of their excess production goes to Brazil.

Normally, the fall season sees wheat prices move higher with peaks typically coming in late September/early October. This year it seems like that peak may be earlier than normal. While it is encouraging to see such huge demand for wheat from the feed sector, we still are very dependent on the export market. 

The Black Sea region and Europe will continue to be key sellers in the North Africa/Middle East markets. Even the Asian markets are up for grabs as Russia has made serious inroads into those distant markets. This winter Australia will certainly be more aggressive in Asia as well – with feed and milling wheat. And now we’ve got Canadian wheat moving into our own feed markets. There is no shortage of wheat in the world, and there is plenty of feed quality stocks to replace the shortfall in corn. 

It would seem to me that both corn and wheat have about run their course on the upside. Considering the headwinds we’re facing in the export market, and that this recent rally in wheat has stalled at strong resistance on the charts, this would appear to be a good selling range and time window for winter and spring wheat.

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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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