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Wheat Technicals Give Way

After barely holding the important chart gap last week, wheat finally gave up and proceeded to fill and move below the important gaps  established in response to the snow and freezes covering the western Plains at the end of April. 

The Kansas crop tour surveyed the state but didn’t go into the fields that were covered with snow. And that accounts for a big chunk of what would have been the overall number. Their final estimate of 46.1 bpa doesn’t consider the lower yielding fields, many of which will be zeroed out anyway. 

Crop condition ratings did decline, particularly in Kansas, Missouri, and Illinois. Yet, the short sellers are waiting to see if wheat plants can stand back up before they get nervous. They would also like to see a weather problem somewhere else in the world, and so far that is not happening. 

So much for a weather market or production problems. Even with more adverse weather occurring on already stressed wheat crops across the Plains and Midwest, namely lots of rain, the market remains unconcerned.

USDA released its first look at 2017-18 supply and demand this week: 490 million bushels of wheat production were lopped from last year to 1.82 billion bushels. However, after lowering feed use and exports, ending stocks are only projected to go down 50 million to 914 million. At least it’s below a billion. 

Kansas production was lowered 177 million bushels from last year to just 290 million; yields were down significantly from last year’s record of 57.0 bpa to 42.0 bpa this year.

World stats were similar, with production down 16 MMT but end stocks up 3 MMT. Interestingly, China’s stocks were projected up 17 MMT even though its production is only up 2.5 MMT.  So, if you remove China, who is not an exporter, world stocks actually decline 14 MMT. 

That said, even removing China from the stats, the world still has plenty of wheat. But it does not have plenty of high-quality wheat, and that situation looks like it will get worse before it gets better. Planting delays in the northern Plains and Canadian Prairies suggest that acres will be switched and/or yields on spring wheat will suffer. In addition, there are numerous reports of disease spreading quickly across the plains and Midwest, and that will exacerbate the quality problem.

Export sales last week were less than impressive for the whole grain complex. Wheat sales at 249 TMT were disappointing, but it’s worth noting that Egypt took 52 TMT of hard red winter and China scooped up 63 TMT of hard red spring. With this marketing year all but wrapped up, we’re not getting off to a strong start for next year. 

Technically, the market failed to hold the important gaps, and price action is just chopping around in the gap’s vicinity. The seasonal tendency to peak in early May is a little murky. We did put in a high on May 1, but normally it comes in around the 10th, often in conjunction with the crop report. This year, the 10th was a low, the same day as the crop report. Perhaps a contra seasonal low? Hard to say. 

But with winter wheat harvest just around the corner, cash markets will likely come under more pressure as we move through June in what is expected to be a quick harvest. Support could come from a weather issue in corn or beans, and while persistent rains are plaguing planting progress in the eastern Midwest, most traders still hold the view that rain makes grain. It’s hard to hold rallies on planting delays.

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