Drought Conditions Persist for Wheat
?? Fundamentals
Wheat prices continue to move lower, despite growing conditions in the US being the worst they have been since the Dust Bowl. Currently, only one third of the Wheat crop can be rated as good or excellent, versus 52% at this time last year. Kansas, which accounts for a good portion of the Winter Wheat crop, has only seen 10% of normal precipitation over the past two months. Over 30% of the state’s Winter Wheat crop has not emerged, meaning it likely can be written off.
Globally, there are concerns that the US, Russia, Argentina and Europe could all see reduced output. Some relief may be in sight for farmers, as snowfall over approximately two-thirds of the state could prevent winter kill. Moisture over the next two to three months could vastly improve conditions, as Wheat is a grain that can handle adverse conditions better than other grains. It is imperative that the Grain Belt see moisture in the coming weeks.
?? Technical Notes
Turning to the daily May Wheat chart, we see that prices have collapsed in recent weeks. May Wheat fell a dollar in December alone. Prices are rapidly approaching support at the 700 level, which can be viewed as critical, as this was the support that held the market prior to prices exploding in June. Not surprisingly, the RSI indicator is giving extremely oversold readings.
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