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Wheat staged a short-covering rally yesterday, although advances in wheat lagged the much sharper gains in corn and soybeans. Traders said that a sharp drop in the dollar yesterday sparked the overall rally. However, one analyst indicated that a rally in wheat prices cancels out the effects of a drop in the dollar in terms of adjusting export prices for US wheat. This leaves US wheat at a continued competitive disadvantage that has caused export sales to drop sharply in recent weeks. Traders may have been sellers in wheat on spreads versus corn or soybeans yesterday, and these traders may be evening up ahead of Thursday’s USDA Supply/Demand Report. The market does not expect significant changes in US wheat S&D numbers, but world production may see some adjustments. Australia raised its estimate of this year’s wheat crop by a fractional amount to 19.969 million tonnes today. Traders said that this week’s export inspections were disappointing for wheat at 12.577 million bushels although cumulative inspections stand at 62.6% of the USDA’s projected total compared to a 5-year average of 52.5%. Inspections need to average 14.716 million bushels each week in order to reach the projection. Deliveries against the December contract today were 1,373 contracts. Total deliveries to-date stand at 24,472.
CASH NEWS AND TENDERS: Japan is tendering this week for 83,000 tonnes of wheat, up slightly from last week’s total. Pakistan is tendering for 500,000 tonnes of optional origin wheat with a bidding deadline of December 20. Morocco is tendering for 300,000 tonnes of soft red wheat. Jordan is tendering for 100,000 tonnes of optional origin wheat for delivery in March. Bangladesh is tendering for 100,000 tonnes of wheat with a closing date of December 15th.
WEATHER: In the US, rain is expected in most of the Midwest today with the exception of the extreme east and SE Midwest. Snow is expected in a wide band running from Wisconsin and Minnesota through NW Iowa and into the central Plains and parts of the SW Plains.
TODAY’S GUIDANCE: Wheat lagged corn and soybeans on the short covering rally yesterday. That is because
- the wheat market is not as oversold as corn and
- if wheat rallies as the dollar breaks, it will still be overpriced on the world market.
In other words a break in the dollar and a rally in wheat cancel each other out in terms of the price of wheat on the world market. We have seen a precipitous drop in export sales of hard and soft red winter wheat due to the higher cost of US wheat, and it is doubtful that the market will tolerate this for much longer.
Barring a continuation of the sharp break in the dollar, wheat remains a sale with a potential objective as low as 430 in the March contract. An intermediate objective is 455. Moderate support is near 475 1/2 to 479 in the March contract with better near 450 to 455. Resistance remains near 510.
