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Seasonal Highs Established in Wheat Market

I think it’s safe to say that wheat ran out of gas this week. Prices continued their upward trek until Thursday about midday when the selling binge began; after reaching a new high for the move and giving major resistance a good test, we ended up with a huge outside day lower.

From a seasonal perspective, we normally see a peak in early February, so this rally had lasted longer than expected. From a cash perspective, we saw basis weaken as the futures moved higher. It’s hard to sustain rallies if they aren’t led by cash. Wheat was also testing major resistance levels as prices pushed to the top end of last summer’s trading range.

It was an impressive run, perhaps led by corn, or major fund buying, or maybe concerns about dry conditions in the U.S. southern Plains as wheat begins to break dormancy. Yet, the fundamentals didn’t change much over the last couple of months. 

We still have record-large world carry-out. Australia had a record crop and they haven’t yet exported half of what they estimate they will sell. But it is Russia that is likely to be the source of bearish pressure in the short-term. 

Russia also had a record-large wheat crop (and grain crop for that matter), but their exports were very slow last fall, and they are behind. That likely means they will become much more aggressive in their sales as we head into spring as their farmers move old-crop supplies to make room for new crop.

This week, Russian cash offers began to decline, and that led to world offers declining as well. With the rally in U.S. prices, we were quickly priced out of the export market. Friday, Russia sold 240 TMT to Egypt; Ukraine and Romania also sold 60 TMT each to Egypt as well. The Black Sea normally dominates that market anyway, but we are likely to see more wheat come out of that region as temperatures warm up and shallow water ports reopen.

Export sales last week continued strong, again primarily for the quality hard wheats. Ironically, it was Minneapolis that broke first early in the week and didn’t participate in the late week surge before the big reversals down. Perhaps cash traders have needs filled for now and are hoping the southern Plains can come in with a good-quality crop to blend last year’s low-pro supplies.

I look for wheat to continue lower into late Feb/early March. As we head into mid-March, new-crop prospects will dominate the market’s attention. The far southern Plains have decent moisture and warm temperatures. Of course, the main focus will be Kansas, and their dry conditions so far this winter.

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