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Wheat surges higher

03/17/2012 @ 11:25am

Despite rains coming to the southern Plains, which would normally have a bearish reaction in the market, high temperatures, aggressive plant growth, increasing winter-kill evidence in Europe and corn purchases by the Chinese all combined to pushed wheat markets higher this week. Last week’s selling was almost completely negated by this week’s change of attitude as hedge funds and index funds went on a grain buying spree, even as wheat fundamentals remain mixed.

Wheat prices definitely have seen a strong undertone over the last couple of months. While still within the large trading range that was established through the winter, price action has become increasingly narrower over the last few weeks. At some point, we’ll get a breakout; and it will probably happen sooner rather than later.

Europe added another two countries to the list which are reporting early signs of winter-kill from the extreme cold snap this winter. Germany and Italy are now reporting evidence of crop damage. We haven’t seen loss estimates from them yet, but total European production expectations continue to erode.

Even Russia is expected to see some production losses; SovEcon is estimating winter-kill issues in the southern region where snow cover was inadequate through the cold spell. They project that exports next marketing year will be lower since most of their exportable supplies come from the southern region, where it is much cheaper to transport to the export facilities. 

Wheat prices were also goosed by a stronger corn market, as sales for 240,000 tons were  announced early in the week and widely presumed to be China buying. While sales had long been rumored, many in the trade expect that this is just the beginning, and many more sales will be coming through the summer. It’s safe to say that as long as corn prices stay supported, so will wheat as wheat feeding continues strong.

So strong, in fact, that we’re hearing of more cargoes of feed wheat being imported into the US. Normally, this would be viewed negatively, but this week it didn’t seem to create many ripples. 

There are negative issues in wheat. We've got rains coming through the southern Plains and temperatures have been above normal. It appears that rainfall will see the usual divide of the west getting only light amounts and the east getting likely more than enough.

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