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Market Shrugs Off Bullish Input

Wheat ending stocks still weigh on the market.

Wheat markets started the week with more selling but did manage to bounce mid-week as they waited for USDA’s Ag Outlook Forum projections. Those projections did offer some positive fundamentals for the wheat complex, but the market basically shrugged them off, ending lower for the week and confirming last week’s reversal down.

The Ag Outlook Forum projected all wheat acres at 46.0 million, down 4.2 million from last year. Production was estimated at 1.837 billion bushels, down 473 million from last year. Ending stocks were pegged at 905 million, down 234 million, but still a very high number. Average price for the next marketing year was estimated at $4.30/bu, up $.45/bu from this year’s most recent estimate.

Those are bullish projections, but end stocks are still high. World stocks are also still high, and projected to remain high. Despite a notable drop in US planted acres, world plantings will remain high as other governments move to support domestic wheat production. The International Grains Council is only looking for a slight drop in world planted acres and production with not enough increase in consumption to decrease stocks any time soon.

With a huge corn crop coming from South America and weather worries largely behind them, corn prices have begun to turn lower as well. If that continues, wheat will lose its support from the feed grain complex. That would pose more of an issue for Chicago wheat, the delivery channel for low quality.

Egypt made another purchase this week, taking another 360 TMT. They paid $207-209 for 300 TMT Russian wheat and 60 TMT Ukrainian. That would be up $1-3 from last week’s purchase and the highest prices of the season. They appear to be making a big push on securing wheat supplies, likely wrapping up foreign purchases before their own harvest starts. So far, most of North Africa is experiencing very good growing conditions for their wheat and are expected to harvest an above average crop.

Seasonally, wheat tends to peak in early Feb, often around the crop report; this year it took a little longer but it certainly looks like we’ve seen the seasonal highs. Prices would typically move lower into late Feb/early March, and then begin to build in a weather premium as crops break dormancy in Kansas.

This year, crops are breaking dormancy early. That would increase their moisture needs early and could also expose them to late frosts. In other words, there will likely be additional weather worries this spring.

For now, I look for wheat to continue lower for another week or so. But, as we get into mid-March the market will shift its focus from old crop/huge stocks to the growing season and lower acres. I look for Kansas City to continue to gain against Chicago, particularly if weather doesn’t cooperate for the central plains.
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