After a weak start, wheat finds support late in the week

Wheat and corn started the week under pressure, while soybeans continued their trend higher. But both wheat and corn managed a late-week rally, bouncing off minor supports and finding solid buying through the close on Friday.

For the week, Kansas City March was down 16¢, Minneapolis down 7¢, and Chicago down 23¢. Corn dropped 15¢ while soybeans soared 83¢. Corn is caught between the strong soybean performance and the weak wheat market; after tagging along with soybeans last week, corn seemed to side with wheat this week.

Tensions between Ukraine and Russia remain high but have stabilized. Russia continued to add military forces/equipment to the borders, so it is unlikely that nerves will calm any time soon. Russia claims they don't want war, but their actions speak a completely different story. The wheat and corn markets sold out of much of the geopolitical risk premium, but if a skirmish breaks out, those markets will be sure to quickly replace that premium.

Next Wednesday, we will get the February supply/demand report. Early estimates suggest the trade is looking for U.S. ending stocks for wheat and corn to be close to last month, while soybeans will decline. World end stocks for corn and soybeans look to be slightly lower with wheat unchanged. The report is expected to show a drop in corn and soybean production from South America due to the ongoing drought in southern Brazil/northern Argentina, along with persistent rain/flooding on mature soybeans in the north.

The stressful weather in South America is causing record corn and soybean production losses, and will directly affect their export supplies. World demand is expected to shift to the U.S. for soybeans, and the U.S./Ukraine for corn. Thus, if Ukraine's export channels get disrupted by a Russian invasion, then it is all U.S. for corn as well, and it is an all-out bull market for grains.

There was very little wiggle room for supply declines before the drought, as grains were already in a bull market from weather issues last year in South America. This year is worse than last year, and we have the added fear factor of Black Sea unrest.

For wheat, record production in Argentina and Australia had a notable dampening effect on price for the last couple of months. I expect those fundamentals are largely factored into price by now. Moving forward, the market will increasingly focus on U.S. hard red winter wheat production across the Plains, most of which is in a drought status.

Recent snows have softened the fear somewhat, but the crop is still dormant. It will soon start growing and the need for rain will be immediate. Crop condition ratings have plummeted since fall, so there is already a good chance of below-normal yields.

Export sales last week were a mere 161 TMT for both old and new crop, below even the low end of expectations. Year-to-date sales are at 17.5 MMT, down 5 MMT from last year, a 23% drop. Wheat sales sit at 78% of USDA's projections compared with the 86% average.

Corn export sales year-to-date sit at 45 MMT, down 11 MMT from last year at this time, a 20% drop. Corn sales currently are 73% of USDA's projections, compared with 67% average. Soybean export sales year-to-date sit at 45 MMT, down 13 MMT from last year, a 23% drop. Current sales sit at 81% of USDA's projections, equal to the average.

A noteworthy piece of news this week was that Russia and China signed an agreement that allows wheat and barley from all of Russia's regions to be imported by China. Russia has steadily made inroads to markets across the globe, particularly as their grain quality has improved, and this agreement is huge for them. For China, it adds a major supplier for grain imports who won't balk if China runs into geopolitical issues themselves over Taiwan.

I think the recent drop in wheat has been as much about being the short leg of spreads against soybeans and corn as about recent moisture. Very little, if any, weather premium remains at the current price level. Corn is trying to keep up with soybeans, and higher corn will ultimately pull wheat higher. Moving forward, I look for wheat to regain some weather risk at least until we are confident of yields.

Seasonally, wheat tends to rally into the February crop report, which of course, is next week. Considering the long way wheat has sold off, if we do have a rally, it would most likely be just a swing high. I look for longer term highs in all the grains to be early May – unless we have weather issues, then look for rallies to extend longer in time.

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Louise Gartner
Spectrum Commodities

Listen to my podcast on wheat and cattle: http://spectrumcommodities.podbean.com/

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