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Wheat loses its gains

Wheat failed to get any follow-through from last Friday’s bullish stocks report, giving up all of its gains as it headed back down to the bottom of its trading range, despite corn holding its gains and soybeans staging a small rally. 

Informa lent their own bearish slant on Friday as they increased corn and soybean production estimates. They pegged corn production at 11.19 billion bushels, up slightly from their estimate last month of 11.09 billion and much above USDA’s last estimate of 10.727 billion. Yields were estimated to be 127.0, compared to their estimate last month of 126.6 and USDA at 122.8.

The soybean production was projected to be 2.86 billion bushels, above their estimate last month of 2.66 billion and USDA’s 2.634 billion. Yields were pegged at 37.8, above their last month number of 35.2 and USDA at 35.3. Their recent estimate is actually below the 40 bushel level that many in the trade had been discussing this week.  

Weather problems persist in Australia, with production estimates now commonly estimated in the 20-21 MMT range, a 27% drop from last year’s record 29 MMT.  Exports are estimated around 18 MMT, down 6 from last year’s huge 24 MMT. Reports say that Australian farmers have been slow forward sellers and exporters are reluctant to offer vessel size sales, instead opting for the smaller containers.

Egypt had yet another tender this week, buying 180 TMT from France and another 60 TMT from Argentina. It’s clear that Russia is no longer in the picture and Ukraine is likely gone as well. However, it was disappointing that the US is still uncompetitive in that key market, even as world prices have ratcheted upward over the last few weeks. 

Winter wheat planting is moving along at about a normal pace across the Northern Hemisphere. In the US, the northern plains and the western half of the central and southern plains remain very dry. Rains and snow this week will certainly help the north, but cold temps will likely slow development. The forecast calls for rains in the western central plains next week, so we’ll see if they materialize. 

Rains have been good in Northern Europe, with the east still on the dry side. Moisture has improved in northern Russia and eastern Ukraine, with the Lower Volga, Urals and Siberia still on the dry side as well.

Technically, the failure of wheat to confirm the big rally on Friday has left the market drifting, and will likely re-test the bottom of its trading range around the 8.50 level basis Chicago Dec. While that is a long term support level, the more time the market spends languishing near there, the more likely it becomes that it will break through. So far, that hasn’t happened so at this point I look for the support to hold. 

The seasonal tendency would still have the market moving higher for yet another week, maybe two. But once we get into late October, the market will wait for the Southern Hemisphere’s harvest to work its way into the pipeline. Australia’s crop may be short, but it looks like Argentina’s will be a boomer – even with lower plantings. 

Perhaps wheat only has enough seasonal strength left to test the top end of the range, although chart formations suggest it could well take that out; the problem is we’re running out of time for the normal seasonal time window. I’ve wanted to sell wheat into seasonal strength, thinking that we’d at least be at the top end of the range. I may have to lower my sights, but for now I’m still looking for wheat to have some sort of bump into next week, possibly the week after before we start a steadier downtrend.


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