Wheat market sees choppy price action

Volume is down and volatility is up. All three wheat markets pushed into new lows last week, but Chicago was the only one that managed to get back into its range late in the week after the dollar was sharply lower. KC and Minn. bumped back into the range but couldn’t hold. After a couple of weeks with Chicago losing to KC and Minn., it appears to be reasserting it strength against those two markets.

Fundamentals continue to be sluggish for wheat and even the broader grain complex. Despite planting problems in Brazil and rain on the Argentine harvest, the grain complex is looking at a jump in exports from Argentina after the export tax is removed for wheat and corn on December 10, and lowered 5% for soybeans. If their exports do increase, it is likely to press world prices even further.

Informa increased Argentina’s corn production estimate by 2.5 MMT to 21 MMT on higher plantings. Farmers had been delaying planting to see who won the election – and are encouraged that finally their markets will be freer than with the previous administration.

Export sales were just OK for wheat, at 432 TMT it was within the range of estimates. It’s worth pointing out that China showed up on the ledger with a 98 TMT purchase and delivery of hard red spring wheat. It was likely buying to blend with their usual lower quality wheat, and could explain the surge in December Minn. futures the last few weeks.

The EU issued export licenses for 1.1 MMT, the largest this marketing year – and will likely be the largest for the year considering the huge rally the euro had last week.

Weather concerns are minimal at this point. We still see some harvest issues in Argentina who will end up with a lot of lower quality wheat. But for the most part, it’s a waiting game to see what kind of winter we get across the major wheat growing areas of the Northern Hemisphere. El Niño was declared a record-large event last week; some are suggesting that when it fades (likely this winter), that it could be replaced by a La Niña that's just as big. That could spell trouble, but we’ll cross that bridge if we come to it.

Russia reported last week that its export sales this calendar year sit at 16.1 MMT, down 2 MMT from a year ago. It also reported that all grain production was 102 MMT, down 3.3 MMT from last year. In response to earlier reports, it made a point to say that it's not restricting any grain exports to Turkey, even though Turkey is apparently actively shopping other sources.

Ukraine reported its 2016 wheat crop is rated 28% good compared to 41% last year. 36% is rated poor compared to 18% last year. It estimates that production will total 17.5 MMT, down 35% from last year’s 27.0 MMT.

STATS Canada issued its final production numbers last week. All wheat was pegged at 27.6 MMT, slightly higher than expected. Barley was also higher at 8.2 MMT. However, canola was the surprise at 17.2 MMT compared to the estimate of 15.6 MMT.

The Commitment-of-Traders report showed a big jump in large spec shorts for Chicago wheat, while they reduced their short position in corn and soybeans. The surge in their bearish stance for wheat could spook some of the shorts like we’ve seen in the past, but clearly the large traders don’t see much bullish hope on the horizon.

Technically, wheat continues to hover just above or just below significant support levels. Much of the negative outlook should be priced into the market, but the upside is weak given the record world carryout and intense export competition. I still think we’ll generally be in a trading range through the winter.

UAC Information Center by information Agriculture.com