Last week nearby CBOT wheat futures plunged to their lowest level since mid January 2018. The low point came in the wake of the USDA Report which projected a new record global wheat crop. Wheat was also caught up in a general selloff in all grains as the funds continued to add to their overall sold positions.
However, on the same night that the new low was posted, the market reversed sharply, and began the buying spree that held right though until trading last Friday night. Last week's rally was triggered by yet another USDA crop progress report that showed that planting of the US corn and soybean crops was falling further behind. With more wet weather in the forecast, the assumption that corn plantings would easily catch up evaporated.
In response the funds began to reverse their position, buying to exit some of their net short (sold) position. The main driver was corn, but soybeans and wheat got caught up in the buying as well.
With yield reductions now being assumed because of late planting, and some acres not being planted, corn prices continued to lift all week as the funds scaled up their buying. While soybeans are also being hit with a delay to planting, it is also felt that some acres will move from corn to soybeans. Add to that the problem with exporting US soybeans against the trade issues with China, and it was enough to stall further gains and see soybean prices pull back at the end of the week.
That leaves wheat. Spring wheat planting is still running behind schedule, but some progress has been made. Aside from that, the wetter than normal conditions in much of the US also has the potential for lifting winter wheat yields.
In fact, the issue for wheat in the US is probably not production, but quality if disease levels get out of control.
At the same time the recent drop in wheat prices globally has uncovered some importer demand. Some of that is showing up in very late season figures for the US, with much better export inspection, and export sales numbers last week.
Until we get new data from Canada, Europe and the Black Sea that might suggest a problem with one or more of those crops, it is hard to see why wheat prices will be able to sustain the rally of last week. The projections for a record wheat crop (excluding China) need to come under pressure.
However, if we are going to get an extended price rally, the timing is right if we see a repeat of the past five years when prices have rallied in May and June.
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