Morning Futures Roundup

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Wheat Retreats as Russian Exports Resume


 Fundamentals

Wheat futures have had a rough start this month, with prices coming under pressure due to the announcement that Russia will lift its grain export restrictions starting July 1st. In addition, much needed rains are starting to occur in Europe, helping to alleviate some of the dry conditions seen in the eastern and central parts of the continent.

The Russian agriculture ministry is expecting the country's grain harvest to rebound sharply, with current estimates calling for nearly 90 million tons this coming season. This is up from 60.9 million metric tons last year, as a severe drought forced the country to suspend exports.

Russia is expected to be a major competitor in the export market this year, which would potentially hurt US export business. Ironically, the increases in Wheat production from Russia may be offset by the rather poor prospects for the US Winter Wheat crop. The weekly crop conditions report shows that only 33% of the Winter Wheat crop is rated good to excellent, vs. 65% last year.

If that weren't enough, the Spring Wheat crop plantings are well behind average, with only 68% of the crop in the ground, vs. nearly 95% one year ago. Wet weather has hampered the spring plantings in North Dakota and Montana, and current weather forecasts are calling for additional rain in the coming days.

There is now concern that the Spring Wheat acreage may fall short of expectations, with some analysts looking for a nearly 5% decline from the most recent USDA estimate. So while it appears that world Wheat supplies may be ample this year, we could still see a shortage of higher quality/higher protein content Wheat, which would likely favor the Wheat contracts traded in both Minneapolis and Kansas City.



 Technical Notes

Looking at the daily chart for September KC Wheat, we notice prices consolidating in what appears to be a huge symmetrical triangle pattern. Currently prices are trading near the lower end of this chart pattern, and a breakout below the lower trendline could spark further selling pressure. However, prices still remain above the 200-day moving average, which is currently just above the 850.00 area. The 14-day RSI has turned weaker, with a current reading of 48.38. Near-term support is seen near the 900.00 area, with near-term resistance found near the top of the triangle pattern around the 977.00 area.


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