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Wheat chops in holiday trade

Markets have basically remained in holiday-type trade, with volume down and generally flat price action. That said, there are still days when we get some activity like Wednesday last week when wheat was down 20 cents. It’s just tough to sustain the price moves when most traders are on the sidelines.

It may seem odd, but weather is still the dominant fundamental. The major focus is on South America where conditions in Argentina and Brazil are becoming more dry and bordering on stressing the young corn and soybean crops. Rains are forecast this week, but so far this season, most moisture events have been disappointing. 

Here in the US, a major snow/rain storm is moving slowly across the southwest, bringing wet and cold conditions to the parched southern plains. That’s good for winter wheat, but will cause a great deal of stress for livestock. It appears that recent rains in the southern plains have helped the winter wheat enough that producers are actually placing calves to graze it in some areas. 

The longer term forecasts suggest that La Nina will still play a role this winter with dry conditions projected across the southern plains and into the southeast. It is interesting to note that the dry pocket of northwest Iowa/southern Minnesota remains dry through the winter. This is certainly a region that bears watching in case those conditions persist into the spring.

We also see that the dry pockets of Ukraine received some light precip over the past week. While most of that crop is likely already dormant, at least some moisture is better than none.

Informa released their estimates for 2012 plantings, showing winter wheat plantings down 800,000 acres, but increasing total wheat acres by a hefty 2.6 million to 57.1 million acres. Corn plantings were projected to be 94.5 million acres, up another 2.5 million, while soybean acres were projected to be down 400,000 to 74.6 million. 

Argentina updated their wheat production estimates to 13.6 MMT, still down slightly from USDA’s latest estimate of 14.5 MMT. Their wheat harvest is now about 50% complete.

The Canadian Wheat Board is still on track for major changes as a Canadian court ruled that it will not suspend the new law that calls for the elimination of the Board’s grain marketing monopoly power. While appeals are still being considered, it looks as though, beginning August 2012, Canadian producers will be able to access the free market for the first time since 1943.

The free market won’t exactly be rolling out the red carpet for them, with record world stocks and stiff competition from all corners of the globe in the export market. But at least they are now able to make their own marketing decisions. Canadian producers are known for their high quality wheat and with stocks generally tight, at least they have that working in their favor.

Price action over the last couple of weeks shows wheat just slogging along, looking like it is trying to carve out some sort of bottom formation. Thin trade and choppy price action make it difficult to get momentum on any specific move and it will likely be January before traders make more of a commitment to a direction. 

I continue to think that ultimately, the winter will be defined by more of a trading range, the bottom of which we’re trying to establish. Production problems already evident in Ukraine and rising Russian export prices have stabilized world wheat prices, and dryness concerns in Argentina and Brazil are expected to support corn and soybean prices; all of which will provide an element of support for US wheat prices. 

The upside looks limited, however, by the abundant world stocks and I expect that the top end of the trading range is likely already well established by the late October/early November highs. This is a wide range that should offer plenty of opportunities to trade through the winter.

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