Rough Week Across Most Markets

February 28, 2020

Rough Week Across Most Markets

Carnage in the equity markets spilled over to the agricultural space, as the coronavirus threatened to spread further here in the US and across the world. Wheat pushed steadily lower throughout the week. But after seeing new lows on Friday Kansas City and Minneapolis managed a higher close, establishing an impressive spike low/reversal up on the daily charts.

Even with the reversals, however, Kansas City closed 23 cents lower on the week, Minneapolis was down 15 and Chicago was down 22. Corn also lost 10 while soybeans slipped 7 cents.

First Notice Day on Friday also contributed to selling through the week, and as we often see, once that is behind us, we tend to get rallies. The chart formation looks like we may be at the beginning of such a rally.

Fundamentally, traders’ focus will shift from old crop demand to new crop supply. With hard red winter acres down this year, the market can’t afford to see them slip away. Farmers in the plains have options; they could tear out those acres and plant another crop, or they could just graze it off.

Moisture conditions are good across most of the southern and central plains, and grazing conditions are expected to be good as well. Plentiful grazing is always a strong pull to keep cattle on grass. If wheat prices continue to weaken, there could be further shifting of acres away from the already record low plantings.

 World prices continued to leak lower throughout the week as well. Russian FOB offers started the week $2/MT weaker at $218-220/MMT but worked another $3/MT lower by the end of the week. Over the last four weeks, we’ve seen their offers drop $18/MT, about $.50/bushel.

Production estimates are already working their way higher across the Black Sea. With a very mild winter about to wrap up, Ukraine is reporting that winterkill is near 0%, almost unheard of for that region. Russia has also had a mild winter. Their early estimates range from 82-87 MMT, compared to 73 MMT last year, and the record high of 85 MMT. Russian new crop offers hover around $190-194/MMT.

Ukraine is estimating their production at 26-29 MMT, compared to last year’s 29 MMT.

The rest of the Northern Hemisphere appears to be on solid footing heading into the growing season, with plenty of moisture in the major growing regions and very little winter stress.

US export sales last week were 450 TMT, at the low end of expectations but still a solid number. Hard red spring wheat sales were 201 TMT, hard red winter 111 TMT and white wheat was 50 TMT.

Longer term, it looks like wheat is headed for a bear market unless we get some adverse weather in a major growing region. Short term, however, we could see a rally as the market corrects off the lows established Friday.

Louise Gartner,

Spectrum Commodities

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