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Funds Remain Short and Wheat Market Disappoints

Export demand is increasing.

Another disappointing week for the wheat complex. After an impressive key reversal higher on Monday, the market simply failed to find any kind of follow-through and ended the week retesting the lows from the key reversal.

Concerns over managed funds being too heavily short spooked some buying on Monday, but stagnant world cash markets, a sharply higher dollar, and weak exports are suggesting that those fund managers just may be right.

That said, these price levels have been tested several times since late August – and have held. Export demand clearly increases at these levels as well, helping to ward off aggressive selling.

There is more chatter about a window of opportunity opening for North American exports this winter. The poor Australian crop will keep their exports at a minimum. Argentina is looking at quality problems as about half of its crop has had too much water throughout most of the growing season, leading to quality concerns.

Now Brazil is looking at its own quality problems with its crop enduring too much rain as well. This week, the Brazilian ag minister hinted at removing the import tariff on wheat. It would appear that they are preparing for a shortfall in their own and Argentina’s crop, and recognizing they will need to buy from the broader market this year.

Russian exports have been on a record pace this marketing year but are showing signs of slowing, typical for this time of year. Winter exports out of Russia will slow to a crawl, and with the Australian and Argentine production shortfalls, the U.S. could see an uptick in our own exports during Dec/Jan/Feb.

That said, the U.S. dollar could turn out to be a drag on rallies. A strong rally this week and improving fundamentals for the U.S. economy and dollar could keep our currency well supported. The effect would be to make our wheat more expensive in the export market and our competitors’ wheat cheaper.

Technically, prices are still holding the important lows of late August, but the buying just dries up on even small rallies. Corn is not offering any support as the harvest picks up steam and cash prices drift lower. Both corn and wheat charts have similar looks to them.

It is likely that lows will be taken out just to see what kind of stops are there, but I would expect the buying to show up again. I look for wheat to basically be in a trading range through the winter, and this obviously would be the low end of a potential range. It certainly is becoming a steady support level, and hopefully will hold again.


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