A Shaky Start to the Year

January 6, 2020

A Shaky Start to the Year

Wheat markets started the year on solid footing but that only lasted a few hours. After reaching new highs for this move and setting a 6-month high, prices buckled and finished the year’s first trading session in negative territory. Friday’s weakness confirmed the reversals.

That said, it was a low volume week and perhaps this week’s full schedule will offer enough volume and liquidity to regain the upward momentum. This week will be important in setting that tone.

Seasonally, it’s not unusual to get a pullback into early January, then another rally into early February. Those February highs are often longer-term seasonal highs. With neutral fundamentals currently the general theme in the wheat complex, it stands to reason to capitalize on strong rallies like this.

The US central plains got a nice shot of moisture over the last two weeks, easing drought concerns. Weather conditions around the world are mostly okay, with no major concerns popping up yet. A lack of snow cover in major regions could be an issue if significant cold comes but the forecasts aren’t showing that for the near term.

Friday will see USDA release three important reports: monthly supply/demand; quarterly stocks; and winter wheat plantings. Lots of data being thrown at us, and plantings will be among the most important. The market expects a decline of about 1 million acres, which take us to a new all-time low since records began.

Trade agreements being finalized have supported wheat prices over these last several weeks. Optimism on increased sales with the USMCA and phase 1 of the US/China agreements have chased bears to the sidelines. Now the markets wait for actual tenders as a result of those agreements.

Geo-political risks have suddenly found their way back into conversations. Escalating tensions in the Middle East spurred crude oil and metals higher. Their strength could potentially support grains if the tension persists.

World prices look to be steady for the second week in a row. Russian FOB offers stand at $219-221/MT, equal to last week. US hard red winter FOB Gulf offers are $226-229/MT, up $5 from last week.

Export sales last week were 333 MT, toward the low end of the range of expectations. The market didn’t read too much into that since it was during a holiday week. Year-to-date sales are at 71% of projections, compared to the 80% average. The total sales so far of 18.8 MMT are up 5% over last year’s pace.

Technically, the market is showing signs of a top, and this week’s price action will be important to see if it sticks. Normally, early February is our seasonal high and I would look for prices to still rally into that window, but it could just be a retest of this recent high.

Louise Gartner,

Spectrum Commodities

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