Wheat Seen Following a Seasonal Rally, Analyst Says

The announcement of a potential breakthrough with China is very positive for ag markets and will likely underpin prices at least short term.

Seasonally, wheat tends to rally into late October, and it appears that we're following that normal pattern. Considering we're very close to the time window for a seasonal high, we'll be looking for solid sell signals as a sign of a top.

Prices for wheat and corn were strongly lower after Thursday's reports, while soybeans managed to rally. But Friday saw prices regain all those losses and then continue to move higher on an announcement of a trade deal with China.

Reports suggest that China has committed to buying an annual $40 to $50 billion worth of U.S. agricultural goods within two years. That is a massive amount of purchasing, with the previous high just a few years ago at $16 billion. It will be interesting to see if the deal actually gets signed and what China will want to purchase. Rumors have it that they will focus on pork, soybeans, white wheat, and hard red spring wheat.

It was quite a week, last week, for wheat markets, and all grains for that matter. Early week strength ran into selling pressure from Thursday's bearish supply/demand report. However, on Friday the market snapped back and surged to a new swing high on news of a trade agreement between the U.S. and China.

The supply/demand report showed U.S. all wheat production down 19 million bushels from last month at 1.96 billion bushels. Imports were reduced 15 million to 120 million, but feed and residual were reduced 30 million to 140 million (still significantly higher than last year's 90 million). Exports were also lowered 25 million to 950 million, which took ending stocks up 29 million to 1.043 billion bushels. The average price was lowered 10¢ to $4.70 a bushel.

World stocks were increased 1.3 MMT to a new record high of 287.8 MMT. USDA lowered Australia's production by 1 MMT to 18.0 MMT and raised the EU production by 1 MMT to 152.0 MMT. Canada was lowered just slightly but one would think more reductions are coming from the cold and wet conditions that had stalled harvest for weeks. Most other countries were left unchanged.

It is likely that USDA will ultimately push Russian production higher after numerous reports within Russia of a much larger spring wheat crop than expected. Most private and government estimates within Russia hover around 75 MMT all wheat production, up about 3 MMT from last month. USDA remained unchanged at 72.5 MMT.

The supply/demand report was bearish for corn as USDA pegged yields at 168.4 bu/acre, up .2 bu/acre while the trade was looking for a decline of .7 bu/acre. They also pushed planted acres up 1.9 million over the estimate to 89.9 million, and harvested acres were 150,000 higher than expected at 81.8 million. Production was pegged at 13.779 billion, down 20 million from last month but 100 million more than estimates.

Soybeans got a bullish report with a yield decline of 1.0 bu/acre from last month to 46.9 bu/acre, .4 bu/acre less than expected. Planted acres of 76.5 million were down 200,000 from last month and 1.5 million less than expected. Harvested acres of 75.6 million were down 300,000 from last month and 105,000 less than estimated. Production was pegged at 3.55 billion bushels, down 83 million from last month and 33 million less than expected.

Export sales were 522 TMT, a nice jump from the previous few weeks. Year-to-date sales are running at 51% of total expected sales, compared with 48% last year and the average of 57%. That's better than corn sales that are running just 19% of expectations, compared with 42% last year and the average of 32%. Soybean sales are also running slow at 34%, compared with 44% last year and the 48% average.

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