Wheat outlook - pants

Wheat markets came under continued selling pressure last week, with new crop futures prices losing $.78 in Minneapolis, $.82 in KC and $.70 in Chicago. Improving crop prospects around the Northern Hemisphere have moved several countries to increase their production estimates; and so this developing record crop just keeps getting bigger.

In the US, KC was the biggest loser for the week despite a forecast for frost dipping into Kansas/Colorado over the weekend; the market obviously wasn't worried about significant damage. Indeed, temps did reach as low as 24 F in western KS and 22 F in eastern Colorado, enough to do minor damage but much of that wheat was already seriously stressed from dry conditions so overall market impact will be little if any.

So far this growing season, the only notable production problems have been in the far westcentral and southern Plains. The northern Plains and Canadian prairies also have dryness issues, but the season is very early. The eastern half of North Dakota has been getting moisture along with some regions of the western half of the state. The far west and north of the northern Plains do have some drought issues, making spring wheat and durum production still uncertain despite an increase in acres.

However, the rest of the Northern Hemisphere continues to look very good. Rains have been falling in key areas, giving the wheat crop a solid start with plenty of subsoil available in most areas. China's biggest producing provinces of Henan and Shandong both project record production after recent rains; together, those two provinces produce about 35% of China's total winter wheat. India also raised their production estimates by 2 MMT over last month to a record 76.8 MMT, and then cancelled an import call option tender, suggesting that their importing days are over for at least this year.

The EU also raised its production estimate to 128 MMT, up 17 over last year. Just in the last month, the world production estimate has increased about 20 MMT, taking it to 60- 65 MMT over last year to a record 665 - 670 MMT, a 10% increase.

Adding to the bearish sentiment was the Ukraine lifting their export ban and immediately confirming a sale to Algeria for 200 TMT. Ukraine then increased the amount available for export by another 1 MMT, saying that they were comfortable with their domestic stocks and the outlook for this year's production. Keep in mind, it was just a few weeks ago that Russia suggested the Black Sea region would export more wheat this coming marketing year than the US. That will certainly be a number to watch.

Australia continues to make news as abundant rains have set the stage for record wheat plantings and production. While their harvest is a long way off, it is not lost on the trade that the world's usually second largest exporter could be a major player again this winter.

I think that this wheat market will continue to struggle as we move forward as fundamentals are increasingly bearish. However, we could still get rallies but will likely be disappointed in those rallies. We are currently at a key support zone, the old double-top high from Dec/Jan, which could hold this market temporarily, but odds are very high that ultimately we'll see another $1 - $1.50 lower into the harvest.