Market Perspective

White wheat cash markets firmed last week despite slightly lower futures and in the face of the Australian and Argentine wheat harvests. Export sales picked up with a total of 4.9 million bu in white wheat sales for the week ending November 15. Total wheat sales added up to 22.7 million bu, a sizeable increase from the previous four-week average. The world price for wheat remains firm, and there was even 2 million bu of soft red sold to Egypt last week.

Wheat futures, on the other hand, remain in a narrow trading range at just above contract lows. Speculative funds once again hold a net short position of over 400 million bu in the Chicago futures. They also hold a short position in the corn futures of over 1 billion bu. The fundamentals in the corn market continue to weigh on the wheat futures while the cash markets in wheat remain firm due to export demand. Technically wheat is oversold in the futures and it would not take much to see some kind of shortcovering rally, which should give a boost to the cash markets.

Corn is a different story. While the last USDA Crop Report did not put this year's corn harvest at over 14 billion bu, it was very close and it is still a record crop. It will take a while for the market to go through that much corn. If it were not for the tightness in the rail freight market, cash corn prices in the PNW could be $10 to $15/ton lower than they are right now.

Crop conditions for next year's wheat crop are still good, with Monday's USDA Crop Progress Report showing 63% of the winter wheat crop nationwide rated good to excellent compared to only 33% last year at this time. But the winter U.S. points out a softening of the "one child" policy because of concern about the effects of an aging population on the economy in the not too distant future. This could increase births in China to more than a million per year. This, coupled with rising incomes and improving diets, would lead to an increase in demand for all commodities, especially food. In a recent article, a leading communist official from the Development and Research Center of the State Council acknowledged the goal now is not total self-sufficiency, but at least 80% over the next 25 years.

The fundamentals for wheat look good, but this is not the usual time for a rally. Trade tends to slow during the holidays, especially with increased competition from the southern hemisphere. But so far wheat is holding its own, and demand remains strong. The funds are heavily weighted to the short side. It would not take much to have a good-sized bounce if something unexpected should happen.

Pearson Burke watches the grain markets for the Odessa Union Warehouse.