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Wheat Market Has Had A Washout Month, Analyst Says

And it was supposed to go the other way.

Last week started with a familiar theme - heavy selling pressure. But then the market turned higher with an impressive rally on Tuesday, followed by choppy but generally higher trade the rest of the week.

The constant chatter of an impending trade agreement with China sometimes supports the market, particularly corn and soybeans, but the non-confirmation silence speaks just as loud as the rumors. Time is grinding away for the trade negotiations; both sides say progress is being made but neither side will confirm any specifics. And so it goes.

Winter weather won’t go away, and Mother Nature slammed the central Plains up into the northern Plains and Midwest with gale force winds, rain and snow. Spring is coming, but it will be a while before farming begins in those regions. The snow and flooding continue to slow rail and barge traffic, reducing export offers at a time when we’re already struggling to compete on the global trade front.

The southern Plains did receive rains that will be very helpful to the young wheat crop. Generally, there should be adequate moisture available to the wheat crop as it begins its growing season from the south to the north across the plains. Some soft red wheat in the southern Midwest and delta regions is stressed from flooding.

The washout price action of the last month has eliminated any weather premium across the wheat space. But in the near term, that should not be a problem with slow emergence from dormancy and recent moisture to the crop that is now growing.

Last week's wheat export sales were a disappointing 346,000, less than half of two week’s ago sales and below the range of estimates. The window for our best shot at export sales is closing fast, with warmer weather likely to help Black Sea exports. We see France still aggressively selling wheat along with Russia and Ukraine. I would expect them to remain a player for the remainder of the marketing year.

Early production estimates from those countries are suggesting big crops for this year as well. Strategy Grains estimates European soft wheat production at 146.1 million metric tons, up 15% over last year’s short crop. Ukraine is estimating all grain production at 70.6 MMT, up 1 MMT over last year. Russia has been estimating a wheat crop around 75-78 MMT, up from last year’s 71.6 MMT. Not too many concerns for those crops at this point, but early warming in Russia’s southern region will be closely watched.

The market will begin to focus on the Prospective Plantings report due March 29, along with the quarterly stocks report. This will give the first official look at spring plantings, even though farmers are still scratching their heads about what to plant.

The market is already looking ahead to new crop, and it sees abundance across the Northern Hemisphere, and more selling from Argentina. Australia is staring at another three months of dryness; it will be tough to plant yet another crop with those conditions.

It’s hard to get enthused about a market that has melted $1/bu in just over a month, a whopping 20%, especially when it was expected to go the other way. At this point, even a weather scare would probably run into resistance at the old trading range lows, and then the trading range highs, which are the levels from which the meltdown started.

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