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Wheat Moves Above Resistance
Wheat markets surged higher this week, taking out the key early January highs. Support came from multiple sources: the plummeting dollar, increasing crop stress in the plains, higher corn, and a very large short position by large traders suddenly on the wrong side.
World wheat prices improved again this week, with Russian FOB values about $2/mt higher than last week. The weaker dollar and strong crude oil prices have combined to support foreign currencies, many of whom are major wheat exporters. Their stronger currencies are buoying their domestic wheat prices as well and making our offers more competitive.
Export sales improved last week, but we still have catching up to do. At 454 TMT sold, it was within the range of estimates and well above the sales of the last three weeks. Marketing year-to-date sales total 76% of projections with the average being 83%. So, despite the weak dollar, the US is still struggling to ramp up sales.
Weather conditions in the plains are becoming more important as dryness continues across virtually all hard red winter wheat country. This week’s Drought Monitor showed expanding extreme drought in the panhandles creeping up into southwest Kansas. Severe to moderate drought engulfs most of the rest of the southern and northern plains. Northern Kansas and Nebraska are the best off with ‘only’ abnormally dry conditions.
The weather guys this week suggested that LaNina could stick around into May/June. While not an intense event this time around, this LaNina is certainly creating dryness across most of Argentina and our own southern plains. The dry weather pattern appears to be getting more entrenched, both here and in Argentina as longer range forecasts show little chance for rain in either region.
Wheat will be breaking dormancy within a couple weeks in the south, and weather will quickly take center stage. This hard red winter wheat crop has already had a great deal of stress, and the next crop condition report will include the cold snap from early January.
Informa released their latest plantings forecast this week. They pegged all wheat at 46.1 million acres, up 100,000 from last year. All winter wheat was 32.6 million, in line with USDA and down 200,000 from last year. Spring wheat is pegged at 11.25 million acres, up 300,000 from last year.
There are a growing number of people who are expecting a fairly high abandonment rate for hard red winter wheat this spring. The spring wheat market will need to hang onto to their acreage increase as quality stocks remain tight here in the US and worldwide. The trade is also hinting at lower Russian winter wheat plantings. This scenario suggests firming wheat prices into the spring.
Seasonally, wheat tends to rally into early February, and that trend appears to be intact this year. With both Chicago and Kansas City closing above the early January highs on Friday, it suggests there is more to this rally.
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