Louise Gartner: Harvest pressure sets new contract lows
The continued harvest across the Northern Hemisphere and increasing production estimates from the Europe, Ukraine and Canada kept wheat on the ropes this week, as we saw the daily charts make new contract lows and weekly charts coming down to the Dec '08 lows.
The markets also had a hiccup on Wednesday when the CFTC announced that they were withdrawing the exemption for two funds to exceed position limits. The market had a very quick downward reaction but just as quick bounced from that low. The expectation is that the accounts will be given time to quietly reduce positions. It is also expected that the fund managers will simply open more accounts and bring their total positions to the original size anyway. So much for working on that whole convergence issue thing.
The European harvest rolled quickly along this week, with more reports of stellar yields in France and Germany. Commercial storage facilities are full and producers are being forced to pile wheat on the ground. Germany is projecting that their wheat production will match last year's bumper crop at 26.0 MMT. They are also reporting that protein levels are lower than last year, and more of their wheat will grade feed quality.
Stats Canada released their first official projections of Canadian crops on Friday, surprising the trade with higher wheat production than expected. The trade was looking for total wheat production to be around 21.7 MMT, but the official number came in at 23.61 MMT. While higher than expectations, it was still down 17.5% from the 28.6 MMT produced last year.
Canadian farmers were also expected to see a drop from last year's record canola production, with estimates coming in at 9.54 MMT, still the third largest crop ever but 24.5% less than last year and almost 1 MMT lower than the trade had expected.
The Ukraine also released updated grain production estimates this week, projecting that total wheat production will reach 21.2 MMT this year, up from USDA's latest estimate of 19.5 MMT, but still lower than last year's 25.9 MMT. This increase in their total wheat estimate comes even though their spring wheat region has suffered from significant drought this season and yields are expected to be down notably.
US wheat prices have fallen enough to make us competitive again in the world market. We scored a significant win with a sale to Egypt of 120,000 of soft red winter. They also bought wheat from France, Russia and Canada but it was still encouraging to be a player in that key market. We certainly can expect that export competition will remain intense throughout this marketing year with the huge crop coming out of Europe and the abundant supplies from the Black Sea as well.
Export sales to date total 7.7 MMT, down 45% from last year's early robust pace. To date, we've only sold 30% of USDA's projected 25.8 MMT. The 5-year average for sales at this point in the marketing year is 43%, so already we're falling significantly behind in the pace needed to reach the projections. The fall period is usually our best time window for export sales so we need to step up the sales activity very quickly or it will become all that much harder to make up sales as we head into winter and spring.