Market Perspective

Wheat markets continue to wander in their winter doldrums. The futures are trying to find a bottom but the commodity funds continue to press the short side with speculative funds now holding close to a 500 million bu net short. On the bear side, the last USDA Crop Report showed 60 million bu decrease in wheat feed use compared to the December report. This more than made up for the 25 million bu increase in wheat exports resulting in a 33 million bu increase in U.S. ending stocks for wheat. World wheat carryovers were also increased 2 million metric tons from the previous report. In addition, India will start its wheat harvest in about a month and they are expecting a record crop which may be larger than the U.S. wheat crop, a first. They are shopping wheat on the world market.

On the bull side, export business remains steady, especially for white wheat, averaging over 2 million bu in white wheat sales per week. China and Egypt have both made large purchases in the last 2 weeks which included some U.S. wheat, indicating that buyers see value at these price levels. Winterkill concerns remain in the Southern Plains and the Soft Red growing areas as two Arctic blasts have given the markets a short term bounce but the full damage will not be known until the spring. Drought is also a real possibility in a large area of the Southern Plains. The lack of precipitation in western Kansas, Colorado and the panhandles of Oklahoma and Texas is just starting to get some attention.

The corn market actually firmed after the January crop report. USDA increased feed usage for corn by 100 million bu and ethanol demand by 50 million bu. That dropped U.S. corn ending stocks to 1.63 billion bu. Still large but not the 2 billion some traders were looking for. As a result corn markets have bounced off their lows. There is still quite a bit of corn still out there and some of it will be there when next harvest starts.

In the background to all this, the Stock Market had a hiccup as stock traders anticipate the Federal Reserve to pull back on their purchase of U.S. bonds. There was also a rumor that China will stop buying U.S. bonds. There was no confirmation but the rumor was enough to back the markets down. If and when the Fed eases up on its purchase of bonds and if China stopped buying, then interest rates would have to move higher, in order to attract investors. Higher interest rates would mean a stronger U.S. Dollar and that would make all commodities, including grains, a less attractive investment and could cause another drop in prices.

I won't even mention the freight market in this article, but it has added a whole other layer to the dynamics of the grain market. Suffice to say there are some major forces hanging over the wheat market that can drive prices lower or sharply higher. The CRC program offers a bottom for new crop but I would encourage everyone to have a marketing plan in place so when opportunities present themselves before harvest, you will be able to act.