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Louise Gartner: Choppy wheat market as volume drops

Wheat markets struggled throughout the week as seasonal pressure and better weather offset positive factors from Russia and the weak dollar. Volume was notably lower in both wheat and corn futures as soybeans became the focus of the grain complex from very strong Chinese demand.
With the Southern Hemisphere’s harvest already begun, it’s going to be hard for the wheat complex to move higher when two major exporters are cutting big crops. This fall, however, quality once again becomes an issue as too much rain in eastern Australia has been creating quality concerns late in the growing season. And the rains continue as the harvest tries to move ahead, making quality problems even more likely. 
Argentina, too, has reportedly had more rain than it would like, particularly as it heads into harvest, but the concerns aren’t as great there yet. 
It is interesting to note that the premiums for higher protein wheat here in the US have remained basically steady over the last couple of weeks, despite the persistent talk of quality problems in the Southern Hemisphere. But it’s still early in the harvest season and quality reports are scarce at this point.
Russia reported last week that they will extend their export ban until July, 2011. Some took that as bullish to the market, and it basically is, but it wasn’t that big of a surprise. Most had expected them to hold the ban in place at least through July, considering that the drought gripped them during July of this year. That would explain the muted market reaction after the announcement was made. 
The volatility of the currencies and financial markets has also lent significant influence on the grains. The dollar’s weakness obviously supports our export efforts and has offered at least an element of support to wheat prices, but the prospect of big crops out of Argentina and Australia are clearly keeping the bullish attitude in check.
Weather remains a significant factor even this late in the season. The US central plains and Midwest were very dry for weeks, creating serious concerns about drought and poor winter wheat establishment before winter sets in. However, rains have been plentiful across most of the central plains and it looks like the lower Midwest will get their soaking rains this week.
The problem still lies in the far western plains that didn’t receive as much rain that was forecast and it still looks like they’re in a drought status. So far, it’s not a large enough area to move the market but it is certainly something we’ll watch throughout the season. 
The remaining dry pocket of Russia also received good moisture over the weekend, which might be too late for this fall, but at least could pave the way for more consistent moisture that would break the drought.
We’re starting to hear concerns about China’s winter wheat and the chances of drought setting in across about 50% of the region. While it’s always important to monitor Chinese crop conditions, at this time of the year it’s not such a huge concern since the crop will soon be dormant. In addition, the planting conditions this fall were good so the crop should be fairly well established as it heads into dormancy. Also, it’s important to remember that the vast majority of Chinese winter wheat is irrigated. 
Technically, wheat looks like it’s just going to be stuck in its wide trading range, with near term prices likely testing the bottom of the range as the seasonal pressure runs its course, which typically lasts into late December. It could find support from the weaker dollar and if corn regains upward momentum, but the top of the range will likely hold back any rally attempts.
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. Past performance is not indicative of future results.
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