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Louise Gartner: Higher prices from demand

Wheat markets were higher every day this week, pushing into new contract highs across the complex. Leadership in the grain complex changed throughout the week with corn having a strong performance as well and beans tagging along. But wheat was the major price gainer as fundamentals and spread unwinding goosed prices strongly higher. 

For the week, Chicago wheat was up 51 cents, Kansas City up 40 cents, and Minneapolis up 47 cents. Corn was up just 8, and soybeans lost 10 cents. The very active corn/wheat spread lost 43 cents in just four sessions. 

After weeks of worry about rising food prices and tightening global supplies, buyers finally stepped up their purchases of wheat to ensure adequate supplies. Export sales for wheat were a stellar 1.1 MMT last week, well above the average of the last several weeks and easily double what the trade was expecting. 

European wheat supplies have tightened after weeks of aggressive sales following their harvest, and higher domestic prices along with a stronger euro have made them less competitive. It looks as though the US is emerging as the primary export market, and certainly so for milling quality wheat where stocks continue to tighten. The blistering export sales were not a result of one major purchase, but a combination of several small to medium purchases, most of which were less than the 100,000 tons which would have to be reported within 24 hours, thus able to stay under the radar until the weekly report.

It’s yet another example of the growing nervousness/borderline food driven panic we’re seeing spread around the world again, almost three years after the last panic. Riots in Tunisia and elsewhere have prompted government officials to be much pro-active this time around in securing food supplies and assuring their populations that everything is fine. 

But the statistics certainly give reason to be nervous, and any hint of production troubles in South America during the next couple of months or the Northern Hemisphere this spring/summer could easily blow the lid off of food prices. The confirmation from the EPA that allows for ethanol blends of 15% only adds to the underlying bullish fundamentals as yet more corn could be shifted to biofuels.

These are the main drivers of the relentless bull market ever since the Russian drought, notwithstanding some notable corrections. How high prices can continue in the short run is debatable but it appears as though price breaks will continue to be well supported until the market is assured of good crops this summer, which obviously is a long way off.

Informa released planting estimates on Friday, giving more fuel for the bulls and resulting in a very quick sharp spike in price action shortly after the release.  Winter wheat plantings were projected at 40.99 million acres, exactly equal to USDA’s estimate from January 12. Their corn acreage estimate was pegged at 90.9 million acres, up 150,000 from December’s estimate; soy plantings are estimated at 76.6 million, down 1 million from their last estimate. 

The market took one look at the numbers, shot higher and then promptly deflated just as quickly back down to pre-release levels. Corn re-tested its contract high in the process before running out of buyers while beans didn’t quite make new highs. 

The technical picture has the bull market firmly intact with prices into new contract highs, which will likely lead to more buy signals for the funds. The weekly reversals down from two weeks ago have been negated with this week’s performance. It is worth noting, however, that the tendency is for a high into late January/early February before going into the February Break seasonal weakness. Given the positive momentum in the market, prices will likely stay strong into early February rather than late January if it does follow that seasonal pattern. While we could see a correction into late February, the intermediate and longer term trends are still up until we take out major supports. It just seems to me that the market is not going to do that until it is confident of a good harvest in the Northern Hemisphere.

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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