Whether you follow fundamentals of supply and demand or make marketing decisions based on technical analysis of price charts, there’s plenty of reasons to be nervous headed into USDA’s Oct. 11 supply and demand reports. If wheat is going to rally this fall it’s likely time for the market to put up or shut up. The government’s updated estimates of supply and demand may not make that any easier.
Winter wheat charts show futures trading wedges of narrowing highs and lows over the past month. The logical fulcrum for breaking free would be what the government does with its forecast of leftover supplies at the end of the marketing year May 31.
The tally of Sept. 1 grain stocks released Sept. 28 suggests summer feed usage was less than expected, though this number is always suspect. Subsequent stocks surveys can take away initial estimates of what was fed in the summer. But with plenty of corn and sorghum available, only off-grade wheat likely made it into rations.
Weaker than expected exports could also spur adjustment. Shipments through the first four months of the marketing year are at historic lows. Total commitments aren’t nearly as bad but still don’t look like they’ll be as good as the government expects. As a result, year-end supplies could move back towards 1 billion bushels.
Still, the market could keep rallying, even with this bearish news. The main mover of the market lately shows where it’s focus lies. Big up days came when reports suggested Russia might curb exports after lower production this year. The latest of those came earlier this week when officials threatened to suspend Black Sea exporters if they didn’t keep quality standards high. Whether any suspension of shipments might actually happen is unknown, and at any rate Russian supplies won the latest tender by Egypt the next day.
Seasonal trends show it’s hard for the fall rallies to keep going. Some years they can, but the impetus is usually weather or lower winter wheat seedings. Neither seems in play just yet. Rains are set to improve moisture noticeably in coming weeks on the central and southern Plains. That could perhaps delay seeding, or maybe cut acres if flooding occurs. But wet falls are typical of El Nino years, which are associated with higher yields the following summer in the U.S.
The first hint of dryness on longer-term maps isn’t until January, when the El Nino could begin to ease according to current forecasts. But a crop that goes into dormancy in good shape has a better chance of surviving the next spring.
Other areas bear watching around the world, because that’s what lifted U.S. prices off harvest lows. Good rains swept across Australia this week, but production still looks sharply lower. Futures down under fell back below their recent breakout as a result so with the crop being made or not right now, that story may not have legs.
The Black Sea region is picking up better moisture, and France remains dry as seeding begins there. China is also dry but has large reserves to fall back on.
Both winter wheat markets still have decent carry for growers with 2018 wheat in on farm storage. Selling May futures or hedge to arrive contracts on whatever rallies developing now likely is prudent, to begin shifting marketing gears to 2019.
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Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Market Review on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat futures that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.