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Wheat to See Tight Trading Range, Analyst Says

07/21/2014 @ 11:45am

Wheat markets moved mostly sideways for the week, helped by a strong day on Thursday following the shooting down of an airliner over Ukraine, only to give all of that gain back on Friday. 

Harvest is moving forward here in the U.S. and across the Northern Hemisphere. Yields for winter wheat are improving the farther north the harvest gets, and spring wheat prospects are looking great as well. 

Wheat harvest in the Black Sea region is also in full swing, and crop analysts are all raising their production estimates. All grain production in Russia is estimated between 92 – 100 MMT, a full 5 MMT more than just two months ago. About half of that is wheat. This spells trouble for other exporters as Russia will be extremely aggressive selling their supplies and no doubt will push world prices lower.

Ukraine, too, is looking at a good crop despite the economic hardships they’ve had this year. They will compete head-to-head against Russia and Europe for wheat sales, and against the U.S. for corn.

The Europeans are well into their harvest and looking at quality issues with too much rain on ripe crops. We’re seeing downgrades of wheat across much of the continent, particularly in France where they had a similar problem last year. 

The downgrades show that there will be much more feed wheat available in the region than normal, much like the problems here in the U.S. The abundance of feed wheat in the world is only adding to the negative corn atmosphere, not that it needed any more negative fundamentals. Soybeans are also transitioning to a bear market with a monster crop coming there as well. 

The general negative attitudes about the grain complex are well entrenched and look poised to stick around for a while. There aren’t enough trouble spots to spark notable short-covering. Pollination for both corn and soybeans should go smoothly as weather is near ideal for both crops. 

Wheat looks like it is trying to find some seasonal lows and could manage to stabilize into a trading range. However, with the large world crop coming in and plenty of old-crop spring wheat to be moved yet, it looks like even small rallies will likely be met with persistent selling. 

Corn is in the same boat: way too much old crop around and new crop that is not priced. Heavy farmer selling is evident even on small rallies. With harvest just around the corner in the South, it will be very hard to see sustained corn rallies, and the weak corn prices will contribute to the drag on wheat prices. 

The Southern Hemisphere’s wheat crop will be the next focus for the wheat market, and with the potential for El Niño, we could see some support this fall. 

But for now, it would appear that wheat prices will at best move in a tight trading range. Cash prices will likely see more of the action, with quality supplies remaining tight so discounts and premiums will be active. For futures markets, however, it looks like a trading range would be a win in the near-term.

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