Harvest pressure weakens wheat prices
Wheat markets continued their slide as harvest finally got into full steam and approached higher yielding areas. Rain delays have done little to slow the price weakness, even as quality concerns mount. The stronger dollar and fund selling have also contributed a heavy hand to the price action.
The harvest in the southern Plains has had a slow start, particularly with the low production from TX and OK, but now that combines are rolling in Kansas we're seeing much more wheat moving into the pipeline. Rains were heavy again over the weekend in much of the harvest area, stalling the combines for a couple of days, but forecasts project that harvest should resume without quality issues for hard red winter wheat.
Soft red wheat, however, is seeing much more poor quality wheat than expected, as scab issues are serious in many regions of the southern Midwest. The soft red quality problems could spell trouble for the feed grain market, where much of this wheat will be forced to move. It will have to compete with corn, whose production is still uncertain, but it will also have to compete with huge world feed grain stocks, where it looks like increasing supplies of feed wheat are coming available from China and Europe.
China announced that they will eliminate the 3% export tax on wheat in an effort to stimulate export business. They've had 5 very good crops in a row, the last two of which have been record crops. Their government storage facilities are already overflowing so they will be looking to the export market to place some of their lower quality wheat.
France, which is Europe's largest wheat producer, has seen too much rain lately as the wheat is maturing and reports are suggesting quality could be lower than normal. They, too, could be looking to the feed channel even as Europe struggles to compete in the export arena in general. Further east into the CIS region, spring wheat areas of Russia had been too dry and were seeing some plant stress but recent rains have helped significantly to alleviate the dryness. It's a similar story in China, where the early season for spring wheat was dry, but recent rains have been plentiful and widespread. Even most of Canada's very dry western Plains received good moisture over the weekend, which will be a huge help warding off more yield losses.
Argentina continues to reel from an intense drought as their planting window comes to a close. Wheat seeded area will the lowest on record at 2.96 million hectares, down 35% from last year's 3.2 million. Australia, on the other hand, has received much needed rain in time for very good planting conditions in the south and east. Western Australia planted mostly into dry conditions but recent rains have helped emergence and the crop should be in good shape as it goes into dormancy. Their early production estimates are in the 22-23 MMT range, about 3% higher than last year.
Seasonally, wheat markets tend to find their harvest lows in late June/early July. Recent price action would suggest that these lows are close at hand. Typically, as the harvest moves into northern Kansas, the price pressure on wheat tends to abate. We'll still see the influence from corn and beans, which lately has been mostly lower but their growing season still has a long way to go. As we move into the mid/late summer, I expect that the futures will rebound but likely will not see as much strength as the cash markets. With the likelihood of higher than normal stocks of lower quality wheat, cash markets will likely use the discounts to keep the poor quality bushels moving via deliveries on futures contracts and the premiums to attract the good quality.