The wheat market has not been able to break out to the upside or to the downside since the selloff we experienced after the Jan 12th USDA estimates. In addition, the market remains in a rather narrow trading range compared to the price action of the last few years. The few supportive factors that exist from time to time have been trumped by ample supply.

US wheat prices are back near key support levels. Supportive influences from outside factors will be needed to hold these levels. US wheat, which had become competitive on the world market, has once again lost its competitive edge. The recent Egyptian tender went to Russia, which was not a surprise. The overall price of US wheat is a key factor, but a relatively strong dollar and increased ocean freight rates are also detrimental to the competitiveness of US wheat. Due primarily to repeat tenders from Pakistan and Syria and new tenders from tenured Pacific Rim customers, the export market remains active. Pakistan will likely buy wheat, but the terms will have to be modified on their end. They received one bid for 50,000 mt on the tender for 250,000 mt. Syria will probably cancel once again. The business into the Pacific Rim will primarily consist of Hard Red Winter and Hard Red Spring with smaller amounts of Soft Wheat. Expect these tenders to take place as scheduled. The business is nice, but it will not have much influence on the market.

The market is waiting for possible demand for Hard Wheat from Brazil. USDA estimated Argentine exports at 3.5 mmt vs. prior estimates of 4.3 mmt. To date Argentina has issued 1.2 mmt in export licenses. Many in the trade believe this will be the extent of Argentine exports, which would open the door for possible US business.  Canada is the primary competition for this business, but do not count out the Black Sea region. The US has a logistic advantage.

The USDA report issued on Tuesday morning was neutral in terms of wheat as ending stocks were left unchanged at 655 million bushels. Many in the trade expected a slight reduction. Soft Wheat ending stocks are expected to be at the highest level in 30 years. Supply and demand figures for all classes were also left unchanged. This is somewhat positive as the economy continues to weaken. World ending stocks were raised to 149.36 mmt from last month’s estimate of 148.36 mmt. The Argentine crop was reduced, but was offset by an increase in EU production.

Trend following funds remain active traders of wheat contracts. However, the lack of a trend, either up or down, has resulted in only minor changes in the net position held by trend following funds. I estimate trend following funds are net short about 130 to 135 million bushels options and futures and 60 to 65 million bushels, futures only. I believe the wheat market needs to experience short covering by funds to rally. The fundamentals are not conducive to higher prices. In fact the market will likely work lower unless outside factors become more supportive. Crude remains a key factor. Unless crude forms a bottom even modest rallies are going to lose momentum. Wheat will also need support from corn and soybeans. Old crop beans are the key as current supplies are somewhat tight and demand remains fairly strong. Large old crop corn supplies will continue to offer resistance to these markets unless demand increases considerably.

The March contract in Chicago is supported at 538 and again at 518. Resistance is at 558 and 579. KC Mar has support at 570 and 548. While resistance rests at 585 and 605. Mpls Mar is supported at 636 and again at 624. Resistance is at 648 and 670.

If you would like more information about this article, please contact Brian Henry at 1.877.377.7965 or email me at brian.henry@archerfinancials.com.


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