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Wheat rally falls again

The wheat complex continued to buckle much of the week on heavy bear spreading, terrible export sales numbers and a slightly negative supply/demand report from USDA on Friday.

An early week rally once again failed to maintain its momentum and the week finished with a drop to new lows for the move and the lowest close since late August.

The crop report was only slightly bearish with USDA estimating a 5 million bushel increase in spring wheat (from imports) that gave us higher total wheat ending stocks by the same amount. The trade had been expecting a slightly lower ending stocks figure. In world numbers, we saw a 1 MMT increase for Argentine production and exports, with China having 1 MMT added to its production estimate; Australia's production and exports both down .5 MMT. That took total world production and ending stocks up 2.8 MMT. While world stocks are still extremely tight, the higher estimate did cast a slightly negative tone to the trade on Friday.

However, the market was already in a retreat from a reversal down on Wednesday, after failing at the first minor resistance. The downward momentum was carried through on Thursday on another dismal export sales report. Despite new sales of 391 TMT, a number of cancellations from North African countries took net sales to a paltry 14 TMT. We’ve gone from record high weekly sales just a few weeks ago, to now new record low export sales this week. It's clear that the demand rationing has taken hold.

Cancellations were the big unknown. As the market surged in late September on aggressive buying from a number of countries, the fear was that if prices came down, then those sales would just be cancelled. It appears those fears are coming to fruition. While year to date sales are still very impressive and well above year ago levels, the squeeze on the cash markets late in the marketing year will obviously be reduced if the cancellations continue.

Argentina has begun their wheat harvest and is poised to bring home their best crop in three years. The Argentine government is in the process of removing the export ban imposed since last March, and has raised the export tax 8% to 28%. Nevertheless, Argentina is expected to be the world’s lowest price seller for the next 6 - 8 weeks, even undercutting the Black Sea. With that kind of competition looming, it's difficult to see the US being active in exports in the near term.

Our own winter wheat crop is still a mixed bag with the very dry pockets of the western central Plains struggling to get established as rains have failed to materialize. This dry region forced a lower rating for Kansas wheat as it fell 7% in the good/excellent category to 55%. Nationwide, winter wheat is rated 53% good/excellent, compared to 59% a year ago. Rains that were forecast to move across the plains and bring much needed moisture to those dry regions have largely missed the areas that needed it most. Current forecasts are also deceasing the amounts and coverage for this region over the next week.

Technically, the extended fall in the old crop contracts has confirmed a long term high. However, we did get a bounce off of the 100-day moving average where is appears some fund buying stepped up, most likely short covering. New crop futures have a much different look to them, as they’ve held their values very well and are basically trading in a wide range at the top of their rally. The continued need to protect acreage and aggressive bear spreading have helped support those prices while the front months have trended lower. We could well see an extended bounce off of the 100-day moving average support that, I think at best, would be a 50% correction, which would still be a notable rally.

The wheat complex continued to buckle much of the week on heavy bear spreading, terrible export sales numbers and a slightly negative supply/demand report from USDA on Friday.

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