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Wheat Prices Fall Below Consolidation Levels

U.S. growing season is off to a less than stellar start.

After last week’s surge higher only to be met with a late deflation, this week was spent largely drifting lower with a notable push down on Friday. Thursday’s Supply/Demand report offered up some fodder for the bears, who were able to break prices below the recent consolidation range.

In this month’s Supply/Demand report, USDA lowered US export projections another 25 million bushels, the second time in two months. Ending stocks were bumped up by those 25 million and now sit at 1.034 billion bushels. World stocks were also increased by 2.8 MMT, sitting at a record 269 MMT. Russia’s exports were increased 1.5 MMT while the EU was lowered 1.0 MMT.

Russia has been the driving force of world price with back-to-back record crops and exports, and they continue to dominate the world wheat market, making inroads to new markets as Australia is unable to supply their usual markets.

Here in the US, of course, our growing season is off to a less than stellar start. Dryness since last fall across most of the central and southern plains is extending into spring. The crop is growing, and moisture demands increasing, but rains simply are not in the forecast for the next two weeks at least.

Crop stress is already extremely high and will only get worse without moisture soon. The market has built a weather premium into prices, most of it done last week. But that rally priced us out of world competition, and even with a short crop we still need to be competitive.

The market is also expecting a significant increase in spring wheat plantings. Recent moisture across the northern plains and Canadian Prairies should at least help get that crop off to a good start.

The world needs production declines in major exporters this summer or prices will struggle to keep the upward momentum. We certainly have the potential for a production problem, but it will take more than just the US. Even with last year’s short crop, we are still carrying over a very large surplus, and that will help to offset potential losses in the plains. Record world stocks will also buffer losses in the US.

Australia’s short crop hasn’t caused much concern in the broader market, as Russia has filled most of the void left by their absence. Prices can certainly respond more to production problems here in the US, but we need to be able to quantify actual damage before getting that next leg up. Even so, upside will be limited considering the huge US and world surplus, not to mention the good condition of the crops in most of the Black Sea region and Europe. It will take more than one major problem in the Northern Hemisphere this season to kick wheat into a longer-term bull market.

In the meantime, it is likely that we will stay in a broader trading range. If the rains do not come in the plains, Kansas City will likely take another leg up as we get into April. The normal seasonal timing for a top is early May for winter wheat. I think that is very possible. However, if the rains do start in the next few weeks, then last week’s highs could turn out to be a longer-term top.

Long range weather forecasts are suggesting that LaNina will dissipate in the next few weeks. Such a development would increase the chances for rains in the plain, so we will see how that develops. For now, prices appear to be retreating but should find support at February’s highs, which was a resistance level now turned support.

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