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Wheat takes a break

Over the last five days, wheat has traded quieter than the previous week, where major swing lows were tested and the market was looking like it wanted to break those significant supports.

We did manage to bounce off of the lows of last week, but the rally was anemic on light volume and couldn't sustain itself. Late week action saw a round of selling that took us back to about midrange between those lows and the rally's high.

The fundamentals for wheat continue to be a mixed bag with the crop advancing rapidly on excellent moisture conditions and above normal temperatures. At this point, frost would be the major concern in the plains, but the forecasts do not call for those kinds of conditions. Crop condition ratings continue to improve for the southern plains states with KS rated 70% good/excellent, up 10% from last week and OK rated 62% good/excellent, up 3%.

In the eastern Midwest, however, the trade is growing increasingly concerned about disease problems that could develop from the very wet conditions. There is little relief in sight as the forecasts call for more rains for the next two weeks.

Export demand in hanging in there, with sales last week of 517 TMT, at the high end of trade estimates. With just over two months left in the marketing year, we're still 4% behind the pace needed to meet USDA's projection of 875 million bushels. The US did participate in a sale to Egypt with a sale of 60 TMT of SRW, showing that at these price levels we're competitive again. While that helped support prices and bring them off the lows, it wasn't enough to sustain a rally. And once again, Russia got the majority of that business with a sale of 84 TMT.

Taking a look at wheat conditions around the world, we see India trying to bring home a bumper crop. But, harvest rains are leading to concerns about quality and yield reductions. Pakistan has similar problems with a greater likelihood of yield and quality reductions. China is in generally good shape; acreage is down because of dry fall conditions, but recent rains and snow have all but alleviated their dryness problems. China's crop is advancing rapidly on good moisture and above normal temperatures. North Africa is showing some drought stress in the western regions. Europe and the CIS are breaking dormancy with a mostly good moisture base; both have experienced a cold snap that could have burned back some vegetative growth, but does not appear to have done any worse damage.

This is the time of year when wheat tends to put in a weather premium, usually seeing a rally into late April/early May. With the current conditions, it's hard to see why Kansas City would need to build in a premium, unless we get some very cold weather forecasts. Chicago could have reason to build in a premium on the very wet conditions, but there are plenty of traders who will stick to their mantra that 'rain makes grain'. It's tough to get bullish when the crop is growing and it's raining.

The bullishness instead would likely still lie with the corn market -too much moisture has become the buzz phrase and Mother Nature isn't offering much relief in the near term. More rains on the way for the central plains and Midwest will ratchet up the unrest among farmers and end-users. There simply is no room for any kind of potential yield reductions in the corn complex, particularly with most acreage estimates already not giving us the 10 million acre increase many think are needed to meet expected increased demand. It will be a relief to finally get USDA's acreage estimates next Friday.

So, the future of wheat in the near term is still as much attached to the corn market as it is its own fundamentals. Until the trade is comfortable that corn supplies will be adequate to meet expected demand, wheat has little choice but to shadow corn's price action. I do expect that wheat will continue to lose value against the corn market, particularly with a very large wheat crop coming on. Therefore, in my opinion, while corn rallies will spill over to support wheat, corn weakness will only add to the underlying pressure in wheat.

I look for wheat to hold the lows of last week that tested the January lows, but have difficulty maintaining rallies unless corn can find its legs again. I don't expect prices for either wheat or corn to move much until after the acreage report, and I would expect more low volume, choppy action for the next week.

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.

Over the last five days, wheat has traded quieter than the previous week, where major swing lows were tested and the market was looking like it wanted to break those significant supports.

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