Wheat Prices Stabilize From USDA Report
It was a generally quiet week in the wheat complex, with sideways price action and little attempt to recover the significant losses from Friday’s USDA reports.
Prices are hovering just above the major lows established in December, and rally attempts lack any energy.
Fundamentals took on a more bearish stance after the plantings report showed only a minor drop in plantings from last year, while the trade had expected a larger drop. But traders were quick to suggest that some of those acres were only planted for grazing, and that abandonment would likely be much higher this spring given the poor condition of the crop this fall and the winter stress.
Indeed, the stress continues with the southern Plains moving into drought status these past few weeks. The panhandles of Texas and Oklahoma are in extreme drought status, while the northern Plains managed to improve to ‘only’ severe drought. Virtually the entire hard red winter wheat production region is in at least an abnormally dry condition, with the north and south the worst.
The dry pattern certainly appears to be well entrenched, with the rest of January not showing much precip on the way. Before you know it, wheat will be breaking dormancy in Texas and be needing a drink. It’s really only about a month away that the growing season gets underway. Rains will have to be timely or the hard red crop will run into yield declines quickly.
The Black Sea region is slated for extreme cold in the next week, but plentiful snows are expected to fall first and offer protection for the winter grain crops across eastern Ukraine and western Russia. Crop conditions in Russia are reportedly in good shape, with just 5% in bad condition compared to 3% last year.
Russia sold another big chunk of wheat to Egypt this week. A 295 TMT sale at $5/MT higher FOB than last week set the tone early this week, and offered support to futures on breaks. Export business has picked up around the world – we’re just not seeing much develop here in the U.S.
Last week’s U.S. export sales were just 191 TMT, a very disappointing number considering the paltry sales during the holidays. The break in futures and the weaker dollar should have helped; but so far haven’t. They certainly helped corn and soybean exports, whose sales were huge and well above expectations. Marketing year-to-date wheat sales now sit at 75% of projections, compared with the average of 81%. Falling further behind the pace suggests that USDA will ratchet down estimates in future supply/demand reports.
Europe’s exports aren’t doing much better, with Strategy Grains reducing projected EU wheat exports by 750 TMT to 21.6 MMT, down 2.5 MMT from last year and a five-year low. They cited competition from Russia as the primary reason for the slow pace. Ukraine is also behind its usual export pace, with sales to date at 11.7 MMT, down 600 TMT from last year.
Russia’s wheat exports are reportedly up 35% over last year. Abnormally warm weather this winter has kept grain moving through the ports. They evidently expect this pace to continue with this week’s sale to Egypt due for delivery in late February, when normally exports would have slowed to a crawl.
While fundamentals had to adjust to the plantings number, technicals were little changed for the week. No major supports or resistance levels were violated. The KW/W spreads did pull back a little; that one bears watching. If Argentine weather continues dry and corn prices rally in response, Chicago wheat will likely follow along and could narrow that KW spread. However, once the growing season in the southern Plains gets started, I expect that KW will gain against the Chicago market for a longer-term rally.
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