Major Reversal Wipes out Gains

September 25, 2020

Major Reversal Wipes out Gains

After last week’s late surge shot futures prices higher across the wheat space, this week saw all three markets give most of the gains back. Monday set the tone as prices pushed slightly into new swing highs, only to end the day with a sweeping outside day lower. The rest of the week saw steady selling pressure.

Technically, we’re now at minor support levels and due for a bounce. The September 1 swing highs will likely be the resistance level if we get that high. Seasonally, wheat tends to rally into late September/early October. It looks like we saw the seasonal high this past Monday with those major reversals down, but we could get a bounce into early October after this week’s sharp drop. Generally, the seasonal patterns have played out pretty close to normal, so I look for near term price action to continue along seasonal tendencies, which would have wheat moving lower into late Nov/early Dec.

Most of the fundamentals support this outlook. There is a huge Australian crop nearing completion (third largest on record), and there will be a notable increase in soft wheat moving into the world pipeline in about 6 weeks. World wheat production this year will be record large, and there are adequate supplies of milling grade wheat. Recent rains across Europe and Ukraine have been ideal for replenishing moisture deficit and have added to bearish pressure.

On the bullish side, dry fall conditions in southern Russia are keeping farmers from seeding winter wheat and their planting window only has about three weeks left. While not a game-changer yet, for the wheat already planted it could spell trouble for establishment before their winter sets in. And, it could reduce the overall plantings. They are also prompting farmers to keep a tight grip on old crop wheat, which has pushed domestic and FOB values higher.

Argentina’s crop appears to be declining again, but they will still have plenty to export. The Buenos Aries Grain Exchange reported this week that they expect wheat production to be 17.5 MMT, down 1.5 MMT from their last estimate and 2.0 MMT lower than USDA’s recent estimate.

World wheat prices have surged over the last few weeks, led by steadily rising Russian FOB offers. Egypt this week purchased 405 TMT of all Russian wheat, $9/MT higher than last week’s sale. As mentioned earlier, Russian farmers in the southern region have significantly reduced sales as the dry autumn season continues, making exportable supplies tight and forcing exporters to reach further inland at a higher cost to fill contracts.

Export sales were a sluggish 351 TMT, with no notable sales shown. Year-to-date sales are running 7% over last year at 13.6 MMT. We’ve sold 51% of projected exports, compared to the 52% average. With the recent run-up in US prices, we’re again higher than most world offers. It will be difficult to maintain upward momentum with a looming Southern Hemisphere harvest about to begin and very large world supplies.

Stellar Chinese demand for corn and soybeans could underpin those markets but their harvest is also looming with huge production expected from both. If corn buckles under harvest pressure, it would add to the wheat selling as well, particularly for Chicago wheat.

Louise Gartner,

Spectrum Commodities

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