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Wheat rally may be on its way

Same story, different week. Wheat holds support near trading range lows, bounces and looks ready for a rally only to run out of gas before it barely gets started. Buyers are there to support the market but aren’t willing to extend themselves for a sustained rally.

New crop wheat contracts have pushed into new contract highs as the drought lingers across the Plains and cold weather threatens before much of the crop is well established. We got our first look at winter wheat conditions this week and the picture isn’t pretty. 

At only 40% good/excellent, this marks the poorest start to the winter wheat crop in 20 years. 15% was rated poor/very poor. Establishment is well behind normal and drought conditions are well entrenched across the heart of the central Plains. As we head into winter, the struggling crop will be particularly susceptible to harsh weather - and there’s been plenty of harsh weather lately.

While crop damage hovers near the bottom of the list of problems from Hurricane Sandy, there are some concerns that have been voiced. Soft red winter wheat in the eastern Midwest could have seen some flooding damage. More importantly, however, are the unharvested corn and soybean acres that were in the path of the hurricane. Both crops are looking at very tight ending stocks and any losses could become a much larger problem down the road.

Wheat faltered into the end of the week as a sharply higher dollar and weak energy markets pressured corn and soybeans, which ultimately drug wheat lower as well.

Early week price action was positive as Egypt purchased 300 TMT. They bought 120 from Russia, 120 from France and 60 from Bulgaria. No surprise that France got some of the business, but Russia raised some eyebrows. Apparently the exporter isn’t too concerned about securing enough supplies for the late December delivery date. The sudden reappearance of Russia suggests they’re not too concerned about meeting November deliveries, either. 

While it was disappointing that the US didn’t get some of the business, the market apparently was comforted by the fact that our prices were only 10 cents/bu over the nearest competitor. At least that was used as the excuse to rally. But again, the rally fizzled out before it could really get going.

US Export sales were lighter this week at only 363 TMT. That was down from last week but still within the range of estimates. At five months into this marketing year, US sales are running about 47% of USDA’s total estimate, significantly lower than the normal 67%. US wheat prices may be nearing world prices, but we’ve got a lot of ground to make up after a sluggish start.

Harvest is gearing up in Argentina and Australia with not surprising poor reports so far. Argentina’s crop has significant disease issues from too much rain and Australia is reporting not only the poor yields from drought but also low protein – likely from frost issues early in the season. Rains have also appeared over Australian crops – too late to help and likely now a hindrance. 

The US Ag Attache in Argentina lowered the wheat production estimate to 10.8 MMT from the previous 11.5 MMT. Current conditions suggest that number will continue to decline. 

Until wheat can break out of this well established trading range, we’re bound to continue in this choppy type of price action. Production problems in the Southern Hemisphere suggest a rally is coming, but it may have to wait until after their harvest and they’ve sold whatever they have available. 


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