Thursday, January 3, 2013
Wheat futures have been in steady decline since November, largely due to soft export demand and lack of outside market support. More recently, the price declines decreased in ferocity due to the "Fiscal Cliff" talks, which took a toll on the risk markets of equities and commodities. Now that this has passed and a deal is in place, the markets should now trade on their own merit. Wheat conditions have deteriorated across much of the growing region. Argentina has had a bad crop year, as the growing region there has either experienced the worst drought conditions in 62 years or excessive rains closer to the coast. Wheat could potentially be the driver of grain prices in 2013.
Wheat prices continue to move lower, despite growing conditions in the US being the worst they have been since the Dust Bowl. Currently, only one third of the Wheat crop can be rated as good or excellent, versus 52% at this time last year. Kansas, which accounts for a good portion of the Winter Wheat crop, has only seen 10% of normal precipitation over the past two months. Over 30% of the state's Winter Wheat crop has not emerged, meaning it likely can be written off. Globally, there are concerns that the US, Russia, Argentina and Europe could all see reduced output. Some relief may be in sight for farmers, as snowfall over approximately two-thirds of the state could prevent winter kill. Moisture over the next two to three months could vastly improve conditions, as Wheat is a grain that can handle adverse conditions better than other grains. It is imperative that the Grain Belt see moisture in the coming weeks.
Technical Notes
Turning to the daily May Wheat chart, we see that prices have collapsed in recent weeks. May Wheat fell a dollar in December alone. Prices are rapidly approaching support at the 700 level, which can be viewed as critical, as this was the support that held the market prior to prices exploding in June. Not surprisingly, the RSI indicator is giving extremely oversold readings.
Rob Kurzatkowski, Senior Commodity Analyst