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Louise Gartner: Wheat approaches technical support levels

Like the rest of the grains, wheat was on the ropes last week as funds held a mass exodus across the complex. 

The markets were already in a minor liquidation mode, when USDA released the quarterly stocks report along with the small grain summary. Finding another 300 million bushels of corn turned a minor sell-off into a rout. Chicago Dec wheat lost 65 cents for the week, while KC lost 68 cents and Minn was down 56 cents. Dec corn lost 55 cents and Nov beans were down 69 cents.

Corn stocks came in at 1.708 billion bushels, 296 million more than average estimates and far above even the high end of the range. Wheat stocks, too, were 36 million bushels more than expected, despite total production being 41 million less than expected. Soybeans numbers were in line with expectations, but that didn’t save them from some bloodletting as well.

Wheat has certainly had an interesting season. In the northern plains and across much of Canada, the rains that plagued spring wheat planting and then came back to plague the harvest have created very tight stocks of high quality wheat and plenty of low quality wheat. Fortunately, the low quality wheat has a bid this year as feed grain supplies have remained tight.

Canada has taken advantage of that demand by moving significant quantities low quality wheat off the west coast, while removing any offers of high quality wheat until they get a better assessment of their harvest. Much of Canada’s harvest has seen too much rain throughout the season, and with late crops the normal frost looked to have caused at least some damage, along with the existing problems of lodging, sprouting and bleaching.

Despite higher wheat prices, Canada projects that winter wheat plantings will not increase because of the late harvest and wet conditions. Other regions of the US northern plains have also struggled to finish spring wheat harvest and winter wheat planting, but weather last week finally turned dry with above normal temps, allowing for very active field work.

Despite the high demand for feed grains since summer, there appeared to be some cracks showing up in demand last week for the lower quality wheat. European wheat prices dropped over $1/bushel as they competed for export sales. Some suggest that the EU will soon run low on wheat supplies but their aggressive sales stance certainly does not reflect that.

Over the weekend, Egypt bought 180,000 tons of French wheat and 60,000 Canadian wheat. Iraq also bought 100 US and 100 Australian. Iraq says these sales will take them to enough supplies for 2011.

Weather continues to be an issue for some regions. Here in the US, the western central plains have turned into a drought status and winter wheat planting has slowed as they wait for rains. In the remaining dry area of southern Russia rains finally came over the weekend, giving a nice shot of moisture to a region that hadn’t seen any since early summer. Winter wheat planting in Russia is normally about done by now, but producers are expected to try to get some late seeding done in that very important production region now that moisture has arrived. Other winter wheat regions of the Northern Hemisphere look quite good for planting, with plenty of moisture in key producers like China, India and across Europe.

Technically, wheat is quickly approaching some notable support levels anywhere from 20-30 cents below Friday’s close. Corn is also about 25 cents above key support and soybeans basically are already there. With the major cleansing the longs have had, I wouldn’t be surprised to see the markets snap back higher in the next day or two. Corn has a good shot at re-testing its major high put in just last week. If it does, it would likely drag wheat higher as well and help it re-test its trading range breakout of 6.79 in Chicago Dec. KC and Minn basically just tested the bottom of their trading ranges, and stand a good chance of re-testing the top end. It’s unlikely that they’d be able to take out their trading range highs, however, as the trend continues to look down.

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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