Cold Pushes Wheat Higher
The first trading of this New Year was a strong one for the winter wheats, in response to frigid cold plunging into the central and southern plains. The rest of the week was quiet as the cold front quickly moved out and forecasts called for above normal temps next week.
Minneapolis was a quiet by-stander on Tuesday as Kansas City led the way higher. The rest of the week, Minneapolis outperformed the winter wheats, making another jab at the old trading range lows, trying to get back into that range established from mid-September to late November.
The wheat complex appears to have strong underlying support, with buyers stepping up as Kansas City and Chicago approach $4.00. A weak US dollar is helping as well. Cash markets are leading the way higher, with basis holding strong as end users try pull wheat out of storage, which appears to be kind of like pulling teeth. This week we saw basis take another jump at the Gulf, particularly for rail bids as barge traffic slowed.
World wheat prices remain stable with offers out of Russia steady with last week. While above normal temps this fall/winter in the Black Sea region have kept ports open and allowed Russia to keep exports moving, traders point out that winter grain fields are vulnerable to a quick cold snap.
The market won’t worry about that until we actually get a cold snap; and as we see from the market’s reaction to US cold, which easily could have done some damage, the market won’t really get worried about potential winter kill until it sees it in the spring. Here in the US, that is a good two months away, and in the Black Sea, three months.
Monthly crop condition ratings were released on Tuesday with Kansas, Colorado and Oklahoma all showing significant declines in the good/excellent categories along with big jumps in poor/very poor. Montana was just the opposite with an increase in good/excellent and small decline in poor/very poor. The market wasn’t too concerned about those numbers, either. But, it is worth noting that conditions have declined steadily since fall and these surveys were taken before the cold snap. Needless to say, conditions will almost certainly be down again in the next month’s report.
Export sales were an abysmal 131 TMT; apparently buyers were still off for the holidays. Part of the poor performance was a cancellation of 110 TMT of hard red winter from Morocco. Marketing year-to-date sales are at 74% of USDA’s projections, compared to the average of 79%.
The Commitment-of-Traders report showed large traders reduced position sizes in all wheats and corn. They lifted some shorts in Chicago and Kansas City wheat, reduced some longs in Minneapolis and lifted some shorts in corn. They added to their short position in soybeans.
Next Friday we will get us some important reports from USDA, the winter wheat plantings (where traders expect to see another 1.0 million acreage decline mostly from hard red winter), the quarterly stocks, and the monthly supply/demand report.
Seasonally, wheat tends to pull back in early January and then head higher into early February. This week’s rally seems to be stalling at the old trading range lows. I would expect pullbacks to be well supported as we head into the important report day on Friday.
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