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Wheat struggles to move higher

08/01/2011 @ 1:12pm

Wheat markets spent much of the week in sideways, choppy price action before running into selling pressure on Friday. News of Egypt again buying Russian wheat deflated the little bullish momentum the market has been able to gather over the last few sessions.

With the bullish outlook for spring wheat and seasonal lows usually in place by now, one could argue that wheat should begin its normal rally into the fall. Corn prices remaining at lofty levels, despite recent weakness, will also be supportive to wheat. However, the pressure on world prices by Russia and Ukraine will likely keep a lid on any notable wheat rallies at least in the near term.

The hard red spring wheat tour last week showed a significant drop in yield for both spring wheat and durum. The average yield estimate for springs was 41.5 bushels/acre, down 4.6 from last year. The analysts noted that the crop was immature, which was not surprising. But they also reported some disease pressure in areas that have remained wet through the growing season. Durum yields were projected to be 31.8 bushels/acre, down 10 from last year.

While the trade is getting a better idea on yields, the acreage figure remains murky. Next Thursday’s supply/demand report will reflect USDA’s re-survey of Montana, North and South Dakota and Minnesota. However, many in the trade feel that even those numbers will still be inaccurate and it won’t be until harvest that we have an accurate figure for planted acres.

Either way, it remains likely that spring wheat production will be much less than normal and Minneapolis futures should regain its strength against both Chicago and Kansas City. Those spreads have seen a setback over the last few weeks as Chicago rallied sharply on spread liquidation with corn and beans, and could present a good buying opportunity.

The debt ceiling negotiations in Washington are also having their impact on wheat. It’s more of a wheat reaction to the dollar and other financial markets but it’s still having an effect. There is little doubt that if the ceiling is not raised, the expected weakness in financials will pull grains lower as well.

The upward price action has been sporadic and lacking any real conviction. Corn has been the main reason wheat has found strength, as livestock producers continue to substitute wheat for corn across the south and southeast.

Technically, the momentum indicators are now above the oversold level and could easily give a strong divergence if prices re-test the recent lows. Judging from the difficulty wheat has had moving higher, it seems to me that the odds of taking another look at those lows are good, and would likely happen within the next couple of weeks.


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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