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Wheat finds a support level

The wheat market found some buying at a technical support level late last week and then again this week.

Positive fundamentals are getting harder to find, particularly as harvest draws nearer. But the slide in wheat prices coupled with the steady corn price has narrowed the wheat/corn spread enough to suggest that wheat could soon find its way into feed rations in the Southeast. That was enough to prompt some wheat short covering and corn/wheat spread unwinding, and a stepping to the sidelines until the delayed corn plantings issue plays out.

Just a few short months ago, the wheat/corn price relationship was in the stratosphere and certainly no one would be buying wheat for feed. But with a new crop year unfolding and the soft red winter wheat crop enjoying higher acres and a relatively problem free season so far, and of course the corn crop struggling just to get planted, their relationship has suddenly become normal again. Now it matters what corn does relative to wheat and their price actions will have some influence on each other. And, of course, our eyes and ears are peeled to the politicians as they debate corn's future in ethanol production. A freeze in the mandate of corn usage for ethanol would certainly cast a negative tone to the corn complex, and take away another support pillar for wheat.

As will the US dollar's price action affect wheat prices. With a record world wheat crop coming, the dollar's rally this week sent some shivers through the wheat market. Some (actually many) market watchers feel rather confident that the US dollar has bottomed and is due for an extended rally. While that may be encouraging for some areas of the economy, it could wreak havoc on the wheat complex as we try to compete in the export arena against coming huge supplies from overseas. This week's export sales were still impressive at 500,000 MT, so we'll see how the US dollar's value plays out, but it could be a significant factor as we move forward.

Crop condition ratings improved somewhat last week, and will likely improve again this coming week. Even much of the northern Plains has seen notable moisture this past week; not all of it was liquid but it was moisture nonetheless and very welcomed. That same snow system moved south into the western central Plains, bringing blizzard conditions to welcome in the month of May. Frost was also expected again in the far western central plains but not enough to do damage, plus the snow was expected to offer some insulation against the cold temps.

Informa released their winter wheat production estimates on Friday, projecting total winter wheat at 1.747 billion bushels, up 231 million from last year. Hard red was estimated to be 990 million, up 28 million from last year; soft red at 535 was up 177 from last year; and white winter wheat was projected to be 222 million bushels. We also see world production numbers continue to ratchet higher, not the least of which from India who is suggesting that they’ll produce a record crop and procure more than ample supplies from their farmers. They've also reported that they will not need to import wheat this year.

Everywhere we look, major and minor wheat producing areas of the Northern Hemisphere are looking quite good. Heck, even Spain and eastern Montana got rains. We haven't forgotten the harvest rains that stole production last year in the US and Europe, and the trade will no doubt be watchful for heat during flowering or harvest rains again this year. But for now the trade has few concerns and price action reflects just that.

As I mentioned earlier, prices have dropped to a key support zone and appear to be holding. This could set the stage for a rally before we get into harvest pressure. Quite often, early May gives us the seasonal high. Considering how the price action has been almost straight down, a bounce could be significant but likely swift. The last notable rally wheat had was in the first few days of April when it rallied about $1 in only three days – and that was it.

Major resistance for both Chicago and KC are about $1 off this week's lows and should stall a rally if it gets that far. If indeed wheat can see that kind of bounce, it would present a good selling opportunity. Harvest will be in full swing by Memorial Day and will very likely produce significant pressure on prices (unless corn and beans get into weather trouble). My downside target for the harvest lows would be the 6.50 – 7.00 range for Chicago July, and the 7.00 level for KC July, most likely reached between the usual mid-June to mid-July.

This publication is strictly the opinion of its writer and is intended solely for informative purposes. It is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way guaranteed. Futures and options trading always involve risk of loss.

The wheat market found some buying at a technical support level late last week and then again this week.

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