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Wheat Prices Fall On Seasonal Pattern
A bearish crop report and plummeting stock market were a little too much for the grain complex. Despite continued dryness across virtually all hard red winter wheat country, wheat futures ran out of steam after setting a six-month high in Kansas City on Thursday.
Basis had been weakening over the last week or two, as the rally in wheat futures and a higher U.S. dollar quickly priced us out of world markets. In the futures market, we did have a red flag before the crop report when we saw Kansas City give up leadership of the wheat complex as the spread with Chicago slipped even before the swing highs were established.
The market was already pulling back from its high when USDA released the supply/demand report, surprising the market with a 25-million-bushel drop in export projections. They did bump up domestic use by 5 million, with the net result a 20-million push on ending stocks, taking us to 1.009 billion bushels. World end stocks were lowered slightly but still rest at record highs.
It’s tough to maintain upward momentum when the crop is still dormant and then we’re reminded that wheat supplies are huge. Weather notwithstanding, large traders took another shot at selling after a couple of weeks of short covering.
The market also was closely following the seasonal trend as well. Wheat tends to rally into early February, typically topping out around the crop report. That case could certainly be made this year.
This year, however, the fundamentals could become stronger as the growing season gets started. We all know how parched the Plains are, and weather forecasts aren’t offering much hope through February. La Niña is clearly having an impact on the southern Plains; long-range forecasts call for it to last through late winter, with some suggesting it will be late spring before it fades.
Obviously, that would make a huge difference in how southern Plains rainfall materializes through spring, and thus how the hard red winter wheat crop will fare. The Drought Monitor shows the intense drought in the south expanding well beyond the panhandles, encompassing most of the southern Plains. The north is also still mired in intense drought as well that carried over from last year and looks to affect spring wheat again this year.
Export sales picked up last week at 416 TMT. Marketing year-to-date sales are running 79% of projections, but the drop in export expectations from USDA will narrow that spread.
On Friday, Egypt bought another 360 TMT; 240 TMT from Russia and 120 TMT Romania. Looks like price was around $193/MT FOB Russia, down about $4/MT from last week. The weaker price puts pressure on world prices and thus U.S. as well, helping to explain the weakness in futures on Friday.
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