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Wheat reaches pre-report highs

Prices continued to march higher across the wheat complex this week, led by an increase in export demand and more talk of Russia and Argentina slowing exports. 

The chatter was constant all week about Russia reaching their export limit of 24 MMT. The rapid pace of exports so far has surprised the government, and traders estimate that by April that limit will be reached, making them reluctant to offer contracts beyond that time.

It is worth noting that the likelihood of export restrictions is not new news. The Russian government spelled out that scenario last fall. In fact, government officials seemed surprised by the market’s concern and questions regarding restrictions as, according to them, that had not been recently discussed. Nevertheless, it has certainly grabbed the attention of the marketplace and helped underpin a market that just two weeks ago was on the ropes.

This comes as the Russian export program was already running into major headwinds as exporters have been struggling to procure enough supplies. Wheat supplies close to the ports are mostly gone, and the cost to move wheat from further inland has pushed their domestic prices above world prices, taking away their status as the world’s cheapest wheat and removing the constant price pressure they’d inflicted for the last six months. Some reports suggest that Russian wheat prices have rallied $20/ton in just the last two weeks (about 55 cents/bu).

We also got some positive reaction from talk that Argentina may also slow down wheat and corn exports due to their ongoing weather issues and production declines. Being the world’s second-largest corn exporter, a drop in Argentine exports could shift a significant amount of business to the US for feed stock, which would include both corn and wheat.

The export sales reports this week and last were much larger than we’ve seen in several weeks, reflecting the sudden competitiveness of the US. The drop in spot prices, a weaker dollar and stronger euro have all combined to put the US as the cheapest wheat. 

That said, the quick rise of the last two weeks could take that status away, as prices are now back to pre-report levels. Slow farmer selling in response to the drop in cash prices pushed up basis levels. The dollar continue to weaken, which obviously also helps.

Weather continues to be a player in price action, with some renewed focus on Black Sea winter wheat. A major cold snap is moving across the region with temps expected to drop to -20 to -30F. While there is some snow cover, it may not be enough in some areas to protect the wheat. Obviously, we’ll have to wait until spring to see the results.

Ukraine has already felt weather’s wrath with very dry plantings. They are projecting that winter wheat production will be down about 35% this year to 14 MMT vs. last year’s 22 MMT.

India is nearing completion of wheat plantings, looking at a slight increase in overall acreage. They are projecting production to be higher than last year’s record crop of 85.9 MMT. This would be their fifth record crop in a row.

Wheat certainly has seen a nice updraft these last two weeks, quickly rebounding after testing the December lows. We’re now approaching the January highs, which should offer significant resistance. As we get into early February, the seasonal tendency is for wheat to top and then had lower into late February. If prices get to those early January highs in the week or so, it would likely be a good selling opportunity before that normal time frame of weakness. As we get into late February/early March, the focus will return to Northern Hemisphere weather as crops start to break dormancy, with all eyes watching the ongoing dryness situation in the southern plains.

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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