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Wheat Stuck in Narrow Trading Range

Wheat markets were lower for the week, with the quality wheats leading the way lower. Chicago managed to rebound a bit against the other wheat markets, taking the front month spread with Kansas City to near even.

Private estimates for Russian wheat production inched upward this week, along with a slight increase in their export estimates, giving reason for bulls to take profits. Also, improving rain chances in Argentina removed fears of a late-season dry spell shaving yet more yield from their crop.

Harvest will be in full swing in the Southern Hemisphere within a few weeks, but there is little expectation of pressure from Australia, where their crop is headed for another poor season. Argentina’s crop is expected to be large but not quite the record production some had projected just a few weeks ago.

Much of Argentina’s good quality wheat will head directly to Brazil, whose crop is running into quality problems from too much rain. That said, Argentina will still have some available to the broader world market, which will likely hit the pipeline in December or January.

Chicago is holding its own against the higher quality markets on the prospect that Australia’s typical markets will be looking for supplies, and the U.S. stands to be the likely alternate source.

Export sales last week were a respectable 476 TMT, with spring wheat taking 58% of the sales at 277 TMT. Bangladesh grabbed 180 TMT of that spring wheat total. As we move into winter, the market expects that Russian exports will slow significantly, if not shut down completely. The U.S. is in prime position to take advantage of the shift in sourcing.

Russian cash offers have steadily moved higher, and deferred export offers are moving above European and U.S. values. Russian exporters are no doubt worried about being able to source quality stocks, or even wheat in general, from January on out.

U.S. winter wheat plantings have struggled to keep up with the average pace due to rain delays, making it difficult to presume an increase in plantings this year. Winter wheat plantings in Europe and the Black Sea have similar delays in plantings, but for them it is due to dry weather and there isn’t much rain in the near term forecast with time running out.

El Nino looks like it will be official for this winter, with meteorologists suggesting a warm winter for much of the U.S., with above average rain for the southern plains and a drier outlook for the north.

It looks like it could take some time for the young bull market to make a move, but the fundamentals do support a longer term bullish stance.

Technically, wheat is stuck in a narrow trading range. I expect that it will eventually move above the topside of the range and grind higher through the winter and into the spring.

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