Soybeans ended lower on Tuesday on a lack of follow through buying, but corn and wheat ended higher for a second day. Both corn and Kansas City wheat markets scored reversals on Monday with corn bouncing off new contract lows in an effort to correct its oversold status. Plus, it looks like the farmer and fund selling that had pressured the market ahead of option expiration started to dry up.
However, last week May Chicago and May Kansas City wheat ended higher for the week when corn and soybeans were both making new contract lows and had lower weekly closes. So, is wheat trying to divorce itself from the row crops and forge a bottom? Allison Thompson, with The Money Farm, says while it has been very slow bottoming action, she thinks this technical action is confirming some type of change in trend.
Thompson says the other sign something is going on in the wheat market is the fact the carry is starting to erode in the deferred contracts. “This is signaling there is some underlying demand surfacing. I have talked to some millers in our area, and they are looking for good quality wheat.”
Basis levels have also started to improve on spring wheat in the Dakotas which is another signal of end user buying.
The fundamentals, according to Thompson, are more favorable for the wheat complex verses corn and soybeans as world ending stocks are tighter and U.S. carryover is also the second lowest in 10 years.
Thompson thinks spring wheat may be starting to bid for acres against soybeans. She watches the price ratio between the two crops, and it has moved to a 1.7 to 1 ratio, which is starting to favor spring wheat. “That could start to shift some acreage decisions in areas like North Dakota and Minnesota.”
The winter in the Northern Plains has also been very mild and there is very little snow on the ground. So, Thompson says it looks like farmers are going to get into the fields early, which may favor spring wheat picking up some acres.
She says just like row crops the key will be giving the speculative traders or funds the right catalyst to exit some of their massive, short position in the three classes of wheat. “However, wheat could eventually be the commodity that leads the row crops higher,” she says.
