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Wheat Outlook - Wheat starts to suck wind

Fall rally running out of time

Wheat, more than most markets, seems to be driven by technical trading. That’s looking more like the case as all three markets ran into chart resistance and fell apart after a rally fueled by some big gains in Minneapolis.

Buying stopped when USDA failed to confirm trouble with the spring wheat crop despite soggy conditions that slowed harvest and raised concerns about quality. Even a big early season snow storm in Montana couldn’t keep the trajectory going.

USDA says it will resurvey fields due to the late harvest, but results won’t come out until November. That’s an eon in the what-have-you-done-for-me-lately world of commodities. Without a narrative from either strong demand or more gains in soybeans and corn it will be hard for wheat to do much more than hold.

Lack of big picture action in futures shifts the focus to the cash trade, which is normally where the action is after harvest. Low protein levels in a big hard red winter wheat crop and problems with wet conditions on the Canadian Prairies should put growers with higher protein wheat in the drivers’ seat, especially if they’re willing to hedge it on the board.

White wheat is also benefiting from stronger demand potential due to the ongoing drought in Australia, which is extending its run for a third year. Soft red winter wheat basis is also strong due to tight supplies though demand is still limited.

U.S. export sales remain mediocre. Most regular customers are taking single cargoes or less. Areas with big demand, like Egypt, continue to be dominated by closer originations. That’s starting to include French wheat, which has been competitively priced with grain moving out of the Black Sea.

So far there are no restriction on sales out of Ukraine and Russia. Ukraine was dry over the past month for seeding but picked up some rains over the last week, while conditions in Russia are better so far. Without early indications of problems governments likely won’t restrict the flow of grain needed to generate foreign exchange. Winter weather is always problematic but like in the U.S. the impact is hard to evaluate until crops start growing again in the spring.

The final area to watch globally is Argentina, which also turned dry over the past month after a good early start to the growing season. Still unclear is just how much wheat Argentina might be able to export if the government changes after elections later this month back to the party that imposed tight restrictions to combat inflation. Even with a pro-business government inflation is still raging, though the country also badly needs dollars for currency reserves it could earn with exports.

Even with a lot of question markets, wheat supplies around the world remain plentiful. And with winter wheat seeding running at a normal pace in the U.S. with moisture mostly good, there’s little reason to think that situation will change.

All three classes moved into selling ranges forecast by my updated supply and demand model, so it’s gut check time. Consider moving to 50% pricing on any rebound into the Oct. 10 USDA report.

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Futures in all three markets moved into selling range targets on the September rally, but there’s no rationale yet for further gains.

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Supplies of exporting countries are in the middle of their range for the last 25 years, not enough to worry end users.

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Wheat commitments aren’t terrible but they aren’t great, either, as customers mostly buy hand-to-mouth.

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Season trends in normal years give July HRW a shot at a bump into the Oct. 10 USDA report, but gains after that can be hard to come by.

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Big speculators bought back much of their bearish bet in SRW, giving them power to sell.

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Spring wheat tries to hang on after the September rally ran into chart resistance and folded.

Download a complete version of the outlook with extensive charts and analysis using the Download button at the end of this report.

More from Farm Futures:

Corn Outlook

Soybean Outlook

Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Market Review on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat futures that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.

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