Wheat Technicals Perking Up

September 27, 2013 01:37 AM
 

What Traders are Talking About:

Overnight highlights: As of 6:30 a.m. CT, corn and wheat futures are narrowly mixed, while soybeans are 4 to 5 cents higher. Light and choppy trade is expected through the day session as traders await USDA's highly unpredictable Quarterly Grain Stocks Report on Monday. Cattle futures are called steady to firmer this morning, while hogs are seen opening mixed.

 

* Positive price action for wheat. I've spent a lot of time talking about the wheat market this week, largely because wheat is making some positive noise for the first time in a long while. Much of my commentary has centered on wheat facing struggles trying to find sustained buying interest if corn and soybeans face seasonal pressure through harvest. But with that said, there has been some positive fundamental news. Adding to the recent wheat-friendly news are reports out of Ukraine that the country's winter wheat plantings may be trimmed by 30% due to excessive wetness. More importantly, the technical picture is starting to perk up. December SRW wheat futures are working on a rounded bottom on the daily chart and have clearly violated the downtrend from the May and June highs. There's still tough resistance at $6.88 1/2 and $7.05 3/4, but if the contract can clear those levels, it would open the door for a recovery to the $7.60 area.

The long and short of it: The price recovery in wheat is still just a correction to the bear market, but this week's price action is a sign the wheat market will try to make a stronger near-term push to the upside.

* Weekend weather key in Argentina. Argentina's wheat crop was nipped by a frost earlier this week, though as I've mentioned, the damage was likely overstated and the coldest temps missed the key production areas. But another (potentially stronger) frost/freeze event is forecast for the next couple of nights over parts of Argentina's wheat production areas. Damage from this event could determine how much exportable wheat supplies Argentina will have to ship to Brazil. Why is this important? Well, Brazil's ag minister says Argentina is expected to have a wheat surplus of 6 MMT this year, meaning his country would be able to source the bulk of its wheat needs from Argentina and wouldn't have to buy wheat outside of the Mercosur (South American trading bloc).

The long and short of it: If Argentina's wheat crop can escape serious damage from the cold snap, it would mean less demand for U.S. wheat, as Argentina would take back Brazilian demand.

* Chinese gov't to buy more grain next year. China's import quotas for corn (7.2 MMT) and wheat (9.6 MMT) in 2014 will be the same as they are this year (and have been for many years). But the Chinese government is allocating a larger percentage of grain imports to state-owned firms next year, according to the National Development and Reform Commission, suggesting there's going to be a focus on rebuild state-owned reserves. Therefore, private Chinese firms will have less low-tariff quotas to work with. In essence, the Chinese government will have even greater control over corn and wheat imports next year.

The long and short of it: This doesn't mean private firms can't import corn and wheat, but they would have to pay a much higher import tariff if they want to go beyond the quota. In all likelihood, that means private firms will continue to look for alternatives, such as sorghum and DDGs, which is already happening as their 2013 import quotas are exhausted.

 

Follow me on Twitter: @BGrete


Need a speaker for a seminar or special event? Contact me: bgrete@profarmer.com

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