Rally could be on way

Rally could be on way


Grains
CHANGES: Wet and cold conditions may hold up plantings in North America. Dry weather is poised to become a factor in Europe, with moisture levels lower than ideal.

CHANGES: Wet and cold conditions may hold up plantings in North America. Dry weather is poised to become a factor in Europe, with moisture levels lower than ideal.

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Higher prices may return with the end of April and the expiry of May options and the May futures contract.

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The wheat market eased a little going into Easter – stalling a minor rally – but higher prices may return with the end of April and the expiry of May options and the May futures contract.

The excuse for the lower prices late last week was ongoing concern about the pace of wheat shipments from the US. Export sales seem to be on track to reach USDA export projections, but shipments have been slower than sales. There are now concerns that some shipments will flow over to the new marketing year, leaving the US with larger than expected physical stocks.

The market is also turning its attention to spring and summer weather outlooks. In the US, wet conditions are a concern in terms of getting corn planted on time.

There are also concerns spring wheat in the US and Canada won’t be planted on time because of the wet and cold. However, the reality is US farmers are able to plant large areas quickly, so it’s not yet at a critical point. Still, speculation is corn acres will flow to soybeans if optimal planting dates are passed.

In Europe, wheat stocks are tightening. Exports are down on a year ago after the small French crop, but the pace of exports has still been enough to run down total EU stocks quite sharply. Additional sales are also being made to Turkey after they banned imports from Russia. Bloomberg is reporting that Europe is likely to end up with its smallest stock levels in about 13 years, with a projected drop of 37 per cent year on year to 10.1 million tonnes by the end of June.

Some are becoming bullish for wheat prices in the EU because of tighter stocks there combining with a drop in global wheat stocks in 2017-18. The EU is projecting a lift in production this year, but exports are likely to remain strong, as will internal demand. However, production estimates are falling a little after a dry winter.

Crops are in good condition, but moisture reserves are lower than ideal. France, Belgium, Hungary and Bulgaria are on the watch list, while Spain is suffering from a shortfall in rainfall.

Seasonal forecasts see a continuation of dry weather for spring – with some return to normal rainfall in summer – but dry conditions are expected to move eastward as summer unfolds.

These weather issues are only just on the radar and will have to develop to really come into play. But with large net short positions being held by the US funds, they could trigger a short, sharp rally at any time.

If weather issues transform into actual lower production numbers in Europe, and possibly the Black Sea, Australia will be set up for a much-needed lift in wheat prices from 2016-17 levels for both old season grain being held and new season crops in the ground.

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