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Wheat exports pick up

Wheat continued to break lower this week on more hedge fund liquidation and early index fund rebalancing before tax changes begin January 1. The looming "fiscal cliff" has spurred more investor nervousness and encouraged additional liquidation. Prices did manage a small bounce on Friday after a very strong export sales number of 1.01 MMT, the largest one week of sales in almost two years.

Prices have struggled to stage any significant recovery after breaking long-term supports despite a fair amount of positive news in the last couple of weeks. The improving export sales was what the market had wanted to see for so long, and prices have dropped low enough that U.S. hard and soft wheat are now the cheapest in the world – clearly stoking demand.

Weather continues to be an issue with virtually no snow cover in key growing regions of the Northern Hemisphere, while temps have reached low enough to do damage in Kansas and southern Russia. Drought in both of those regions is still well entrenched with little relief in the forecasts.

Harvest is sloshing along in Argentina where persistent rains and floods have turned what could have been good yields into a disaster. The Argentine government has shut off wheat exports at 4.5 MMT (what they’ve already committed), and quality will be poor regardless of what they actually do ship. Their main customer, Brazil, has already had to come to the world market looking for high-quality milling wheat. Brazil normally imports roughly 7 MMT of milling wheat per year, with 4 so far committed by Argentina. Thus, they will have to buy the remaining 3 MMT from the open market. It could easily be more, however, if Argentina can’t meet quality specs in the cargoes already committed.

Australia’s harvest is winding down with disappointing quality and drought-reduced yields. Still, they’ve aggressively stepped onto the world export market with this year’s crop and will likely be a presence for the next few months.

As we move into this next year, I expect that world wheat supplies will tighten, leaving the U.S. and Canada as likely sellers of last resort.

As we look back on the year of 2012, we experienced the worst drought in 50 years and saw grain prices soar. They’ve certainly pulled back from that rally as demand collapsed for corn, wheat prices were undercut by a very successful export program from India, and potentially record South American soybean production pressured soybean and product prices. Drought still lingers in much of the U.S. and Black Sea region, but Mother Nature usually brings the spring rains – we’ll see if they show up in 2013.

Best of all, it’s nice to know the world didn’t end. So we can take a deep breath, appreciate our blessings, and look forward to a prosperous New Year. 


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