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Wheat Market Tests February Highs

March brings wheat dormancy.

Following a long weekend, wheat opened trading last week on a firm note, as a gap higher in soybeans pulled both corn and wheat higher. But it was downhill from there with Tuesday’s trade ending the session with a large, sweeping reversal down. Chicago wheat managed to test the early February high before running out of gas. Kansas City barely punched a fresh, six-month high before selling off, ending the session with an outside day lower.

The technical signals are bearish as the market failed to move beyond where it had failed just two weeks earlier. The seasonal tendency normally has the market moving lower into late February and early March, and the market appears to be following the seasonal tendency quite well so far this year.

As we get into mid-March, wheat will be breaking dormancy in the central Plains, and then it’s just a matter of weather. So far, the dry pattern is well entrenched across much of hard red winter wheat country, but the dry region is slowly shrinking.

This week, a massive rain system moved through much of Texas and Oklahoma up into the Midwest. It didn’t create flooding in the Plains like in the Midwest, but certainly improved topsoil moisture in key wheat regions of the southern Plains. The flooding in the Midwest is causing concerns about damage to soft red winter wheat, helping to explain why Chicago gained on Kansas City this week.

The weather guys are starting to hint at La Niña dissipating in three to four weeks, and that would significantly increase the probability of more rain coming through the southern tier of states just in time for the growing season.

Egypt bought 120 TMT of Russian wheat this week at $208/MT FOB, $233.50 delivered. That was up about $2/MT from their last purchase on February 9.

USDA’s Ag Outlook Forum was last week. The projected all wheat acres would be slightly higher this year, at least for now stopping the skid in plantings. At 46.5 million acres, it is an increase of 500,000. With winter wheat projected down about 200,000 in the January Prospective Plantings report, it suggests that spring wheat/durum will see a bump of about 700,000 acres. That would help explain why Minneapolis has failed to move higher with winter wheat; at least it isn’t following winter wheat lower.

The market does need more spring wheat acres – it actually needs more high-protein wheat in general. Drought conditions are still largely intact across the northern Plains into the Canadian prairies. I would expect Minneapolis to stay generally where it is until it feels comfortable that it is actually getting the acres and at least some rain falls across the north.

The Forum also projected corn and soybean acres to be exactly equal at 90.0 million acres. Looking at price incentives, there appears to be a growing likelihood that soybean acres will surpass corn acres for the first time ever this year.

The Forum projects that all wheat production will be 1.839 billion bushels in 2018, up 100 million from last year. Ending stocks are estimated at 931 million bushels, down 78 million from this marketing year. Corn production is projected to be 14.39 billion bushels, down 210 million; yields at 174.0 would be down 2.6 per acre; and end stocks at 2.272 billion bushels would be down 80 million from this marketing year. Soybean production is estimated at 4.32 billion bushels, down 70 million from last year; yields at 48.5 an acre are down .6 from last year; and end stocks at 460 million are down 70 million.

Needless to say, we don’t see a shortage of grain on the horizon in the U.S., barring weather calamities. The rest of the Northern Hemisphere seems to be in good shape as well as we head into the growing season. Moisture supplies are good in Europe and the Black Sea region. India could end up a little short on production, with some chatter that they could be importing a few million tons of wheat this year. Look for that to be low quality, with the U.S. potentially a player since Australia will be hard-pressed to compete after their very short crop this year.

Short term, I look for wheat to move lower into early March. If rains materialize in the Plains, then it has a good chance of testing contracting lows, but that would be as we head into April. There is a strong likelihood that acreage abandonment will be high this year in the Plains, but we won’t really know how much until the June plantings report, long after the crop has been made.

For daily commentary and hourly market reports on wheat and cattle, listen to my podcast at http://spectrumcommodities.podbean.com/.

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