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Wheat Moves in a Sideways Pattern

It was mostly a choppy week, with wheat trading in a narrow range. There was strength early in the week on optimism that China might be buying large quantities of ag products, including wheat. However, without any confirmation of business, the market gave up its gains.

There appeared to be aggressive fund selling on Thursday, a ‘Voice From the Tomb’ sell date of January 10, but the sellers didn’t get far as Friday’s trade erased those losses. Wheat is finding good buying support on the breaks, but the rallies just can’t find any traction.

Egypt bought 415 TMT of Russian wheat this week, a surprise to the market in that Russia actually had offers that deep into the winter and for such a large quantity. Egypt’s last purchase in late December had only Ukraine and Romanian origins, and it was thought the U.S. could be competitive. This week showed us a different story. The U.S. was far from competitive with soft red $5/MT over the landed purchase price and hard red winter $15/MT over. That took some of the wind out of wheat’s sails.

Algeria purchased 550 TMT this week; it was thought the U.S. was part of the deal with a couple cargos sold.

Friday, we saw wheat prices jump back up, led by news that Ukraine was removing the VAT rebate for grain exporters, thereby making their exports more expensive. There were also stories that the Russian ag minister wants to meet with grain exporters again to have another discussion about export commitments and restrictions for the larger exporters. The smaller exporters apparently won’t be issued any more phytosanitary certificates until the new crop comes in.

The Russian ag minister also announced that the country will only allow 12 MMT of grain exports after January 1, presumably for the remainder of the marketing year that ends on June 30.  Most of the exports would still be wheat and amount to about 1.5 MMT/month. This is still a relatively large number, especially if they were to continue selling throughout the winter/spring, a window that was thought to be much harder for them and better for the U.S.

Weather conditions have not improved much in Argentina and their remaining crop is suffering from too much rain. We see that the North Africa region is stuck in a dry pattern, mainly for Morocco and Algeria. We’re seeing some stress to South Africa crops as well.

No crop reports this week. Originally scheduled for this Friday were the winter wheat plantings, quarterly stocks, and monthly supply/demand, along with the normal export sales and various other reports throughout the week. The lack of data is making traders nervous and likely adding to price volatility. The government shutdown and trade war issues are clearing casting a pall over the market, with no end in sight for either one.

With plenty of reason to press the wheat market this week, and traders did try, buyers stepped in again to support the market. Fundamentals are in the bullish camp, but if indeed Russia can supply over 1.5 MMT of wheat per month through the winter and spring, then we’ll need to scale down our upside expectations. That said, wheat acres will be an issue this spring, and I think Kansas City will perform better than Chicago into the spring time frame. Minneapolis should also outperform Chicago as the market looks for acres.

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