Wheat Stalls After New Highs

January 24, 2020

Wheat Stalls After New Highs

Wheat had an active trading week, surging higher coming out of a long weekend only to give it all up the next day. Chicago reached a new high for the move on Tuesday, also an 18-month high, then reversed down with a spike type of price action on Wednesday. Kansas City and Minneapolis both tested recent highs before they, too, headed south, forming what looks like a double top.

For the week, Chicago was 3 cents higher, but Kansas City was 8 cents lower while Minneapolis was 12 cents lower. Early week spread action saw Chicago surge higher against the other two wheat markets and corn. However, by the end of the week Chicago was losing ground against them.

An active week, indeed. The bulls were optimistic that China would soon be buying but to date we haven’t seen evidence of it. The enthusiasm faded quickly on the lack of news.

That said, world prices continue to ratchet higher; with Russian FOB offers this week up another $2/MT to around $225/MT. Slow Russian farmer selling has supported domestic and export prices, but the trade is bracing for the eventual selling wave as their marketing year enters the second half.

French wheat prices are moving strongly higher from an ongoing transportation strike that is hampering grain movement and creating backlogs in the pipeline.

Last year’s crop in Russia is expected to fill the pipeline either in Feb/March as farmers generate cash for the upcoming season’s operating expenses or in June as they empty bins before the harvest. Assuming normal weather, they could well cut a record crop with winter wheat plantings up 5% over last year.

The normal seasonal pattern is for wheat to rally during most of January and peak around the February crop report. So far, price action has followed the seasonal patterns and look to continue that price action for the near future.

As we move into late March/early April, the market’s attention will turn to new crop. With hard red winter acres lower, there is little wiggle room for yield losses. Soft red acres were higher, and odds are good that we won’t experience the brutal rains and acreage/yield losses like last year.

This change could affect the fundamental structure of the market.  Lower hard red production and higher soft red would not support the current premium that Chicago carries over Kansas City. I think the time is right for the spread to begin its move back to a anormal alignment that would have Kansas City premium to Chicago, it not significantly premium.

We saw stellar export sales again this week, with a total of 741 TMT sold. Hard red winter sales were 284 TMT, spring wheat 220 TMT and white wheat 183 TMT. Year-to-date sales of 20.3 MMT are 2.2 MMT ahead of last year, a gain of 12%.

I look for wheat to get a bit more pressure in the near term, but the strong seasonal trend could bring prices back to this week’s highs during the first half of February. Considering the strong sell signal from this week’s reversal down, a test of those recent highs is likely to stall the market again.

Louise Gartner,

Spectrum Commodities

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