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Outlook estimates pressure wheat

It was another week of choppy trading for the wheat market. It spent the early part of the week waiting for the estimates from USDA’s Ag Outlook Forum. When they were released on Thursday and Friday, they turned out to be generally negative for the wheat complex. 

USDA projected that 2012 all-wheat acres would be 3.5 million more than last year at 58.0 million acres. With winter wheat acres at 42 million, that leaves 16 million for spring wheat, a big jump from last year’s 12.4 million. Minneapolis took the brunt of the selling as acreage numbers like that would suggest a very large spring wheat crop. That’s presuming, however, that rains arrive to alleviate the very dry status across most of the Northern Plains and Canadian Prairies.

All wheat production for 2012 was estimated at 2.165 billion bushels, up 166 million over last year. Ending stocks were projected at 957 million vs. the 887 projected so far for this marketing year. With world wheat carryover supplies record large coming into this next production season, the increase in US wheat and corn stocks will likely keep price rallies in check unless we see notable production losses during this next growing season.

Corn acres were raised the expected 2.1 million over last year to 94 million. Corn ending stocks were projected to double to 1.6 billion bushels, a much more comfortable number than the extremely tight stocks of 801 million this year. 

Soybean estimates had more of bullish slant as USDA kept plantings steady at 75 million acres. Ending stocks were lowered 70 million bushels to 205 million. 

Most of the acreage and S&D estimates were close to where their baseline projections were last week except for wheat acres, which were a bit higher than expected.

While wheat continues to fight against the bearish headwinds of record world carryover supplies, prices appear to have a strong base of support that shows up on the pullbacks. Feed grain demand remains very strong and continues to spill over to wheat. The production issues in South America have shifted notable amounts of corn and soy demand to the US. 

Until the tight feed grain supply situation is alleviated, wheat prices will continue to follow corn prices. And corn prices look to stay well supported until we’re assured of ample production out of the US. 

And so it goes, wheat has its share of bears, but the demand bulls keep showing up. World wheat trade has surged in the past few weeks, and the US is picking up plenty of the business. Europe, Australia and Canada round out most of the remaining sellers. It is interesting to note that Iran has bought nearly 2 million tons of wheat in the last two weeks, all through barter arrangements. 

It is Russia and Ukraine that noticeably absent from the list of sellers. The Ukraine government repeated this week that they will not impose export tariffs, saying that supplies were sufficient for domestic use and exports. Russia said similar things just a few weeks ago. This did little to pressure the market, however, as their domestic prices are above world prices, making exports from them a mute point, anyway. 

It has certainly been interesting to watch the price action of wheat these last couple of weeks. The seasonal tendency for this time of year is to move lower into late Feb/early March. We’ve had some weak days, but very little follow through to the downside. Although prices this week moved in a consolidation type of trade, the winter has seen basically a broad trading range with current prices about in the middle of that range – except for Minneapolis. There, old crop contracts have been throttled the last couple of sessions and are sitting at or near their trading range lows. For as dry as the northern prairies are, I don’t think I’d want to be short new crop spring wheat futures – even with an increase in plantings. Not, at least, until the rains come. 

As we move into early March, the market will shift its attention much more to weather in the Northern Hemisphere. The dryness in the western half of the southern plains continues to be a huge problem and will certainly be supportive if it continues when wheat breaks dormancy. The next month and a half will be extremely important as we get into the winter wheat growing season here in the US and get a look at the winterkill damage across Europe and the Black Sea region. 

While wheat prices may have the upside limited, I continue to think the downside is limited as well. The lows that have established the bottom of the trading range over the winter I think will continue to hold. If we do test those lows in the next week or so, it should set up a good buying opportunity.


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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