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Wheat Testing Seasonal Lows

Wheat prices last week were a steady slide lower, testing the seasonal low from late August. A bullish crop report for soybeans helped pull corn higher and spilled over to some short-term support for wheat as well. But wheat couldn’t hold those gains and re-tested supports.

Friday saw managed funds cover some shorts heading into the weekend, giving wheat bulls a reprieve. Could it be that they don’t think wheat will press lower than those seasonal lows? One could hope so. It would be tough to compress wheat much below those levels, particularly with Australia’s disaster crop this year and winter coming that will freeze up much of Russia’s export capacity.

It would appear there is window of opportunity opening for U.S. wheat. Normally, Australia and Argentina dominate much of the world trade in the winter months, because that’s right after their harvest. This year, Australia will barely be able to fill long-term agreements, and basically have nothing left for the broader export market. Window for us.

Argentina looks to have decent production but, according to their own grain exchange, 51% of the crop is standing in excess water. Quality problems? Likely. Yield? Could be next. Window for us.

Russia produced a MASSIVE wheat crop this year, and their exports have been huge. That will change as cold weather freezes over most of their export capacity. Not all, but most. So, while they will still manage to export some wheat, their presence will be much less than it is now. Window for us.

That window may be all we get, with world end stocks at another record high – thanks largely to Russia offsetting some pretty big production problems here in the U.S. and Canada. North American spring wheat production was a bit higher than expected, reflecting the continued weakness in Minneapolis futures despite winter wheat holding those late August lows.

If Argentina can’t fulfill Brazil’s quality specs, it could open another window for high protein here in North America. That is a real possibility and would likely evolve during the winter as well, before their own crop gets harvested in spring.

Technically, I’ve been looking for wheat to settle into a range during the winter months. We’re testing the low end of that range, and that makes for some low-risk buying opportunities. Upside target is initially the $4.60 level on Kansas City December; beyond that, we look for $5.10.

Grab that price for longer term sales if we get it. With plenty of moisture on U.S. winter wheat, the prospect for good yields next year is high, even if acres will see another decline. Recent rains in the northern Plains are also providing some optimism for next year. Rains on Russia’s dry southern regions should help get their winter crop established, as well.

Prospects are already looking good for next year’s crops. It’s a long way off, but the market will struggle to move beyond another dollar higher unless we see a drop in world production next spring/summer.

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