Good Weather Pressures Wheat Market
Kansas City May wheat saw a $3 handle on Friday, but managed to close back into $4 territory. Chicago front month touched a low of exactly $4.00 before buyers stepped up there as well. The slow, steady bleed of wheat values over the past couple of months gained momentum this week as heavy selling on Thursday established new contract lows.
There is little to stop the slide, other than the $4.00 psychological level offering a smattering of support. While it’s still early in the growing season and there is virtually no weather premium in the current price, moisture conditions are mostly excellent across the plains and worries of frost are behind us. Crop conditions are improving weekly - along with yield expectations.
Other areas of the Northern Hemisphere are mostly in good shape as well. The Black Sea has plenty of moisture with more on the way. Coolness might be their issue, but it’s even earlier there than here. One trouble spot brewing would be northern Europe where dry pockets in France and the UK appear to be growing with little relief in sight near term.
Last year was a disaster for France (too much rain), and another short crop this year would put the EU into a very tight supply situation. For now, it is not serious but obviously worth watching. It would take a major supply shortfall in a major exporting region to change the sentiment of the world wheat market. At this point, the EU dryness is the only thing that has that potential. But again, the growing season is still young.
Stats Canada released acreage estimates on Friday. All wheat was pegged at 23.18 million acres, almost exactly equal to last year but about 800,000 higher than trade estimates. Canola plantings were estimated to be 22.4 million acres, up 2.0 million from last year and 1.1 million higher than expected.
Planting delays in Canada may change those acreage intentions. Spring wheat futures have tried to hold some sense of bullishness with the slow seedings across the northern plains and the surge in demand for high protein wheat. But the spillover pressure from the winter wheats has been too much for the lone bright spot in the wheat complex.
The Commitment-of-Traders report this week showed more selling in the Chicago wheat market, with large traders’ net short position reaching near the record. Kansas City has flipped from net long to net short over the past few weeks, with that position building as well. Corn and soybeans also saw the massive short position get bigger. The ship is definitely leaning strongly to the short side, which may spook the trade short term; but until fundamentals give a reason to change, the shorts will continue to build.
Technically, the charts showed a bounce off the $4.00 level, and we could well extend into an actual rally, but there are numerous resistance levels above the market. Most grains are in oversold territory, which could help support a short-term rally, but the trends are well entrenched and sellers likely will press even small rallies.
Seasonally, the tendency to rally into early May is obviously not working. Perhaps we’ll get an inverse seasonal and get a low instead of a high. We’ll just have to see how the price action plays out over the next couple of weeks.
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