Louise Gartner: New contract lows
It was another week of persistently lower prices, as Kansas City and Chicago wheat posted new contract lows three days this week, and Minneapolis had a new low every day. With spring wheat harvest moving along under mostly good weather conditions and ever-increasingly large corn and bean crops just weeks from record harvests, the bulls just donâ€™t have much to talk about.
Not only is the market itself weak, but the spread relationships are making big moves as well. The increasing estimates for spring wheat production along with less than normal protein continue to erode the Minn/Kansas City spreads, with the Dec contracts narrowing about 40 cents in just the last three weeks. Itâ€™s rare than Minn would move discount to Kansas City, but that is certainly possible this year.
Weather in the northern plains is expected to be mostly good for the next couple of weeks and spring harvest should progress rapidly. Weather is also expected to very good in most of the Midwest which should bring the corn crop home with full maturity, leading to more projections of record corn production this year. That will most likely continue to be a drag on corn prices, and take away one of the pillars of support from wheat, especially in a year like this when a large quantity of low quality wheat would be competing in the feed grain arena.
India reported this week that they could see record wheat plantings this fall, in response to increased government price supports and better inputs. The slow development of the monsoon made for a poor summer growing season, but the late rains have created good planting conditions and the government is eager to replace lost summer production with winter production of wheat and rapeseed. India also announced that they were releasing 1 MMT of wheat into the domestic market.
The lower prices are at least helping with our export sales. This week the US did get part of a 330,000 MT sale to Egypt, with 60,000 MT of soft red winter going to the US, 90,000 to Russia and the rest of the 180,000 going to France. Export sales still lag behind the pace needed to reach USDAâ€™s estimate, but fall is typically our strongest season and weâ€™ve got time to catch up. That said, our time window is now through early October; after which Australia will be harvesting what looks to be at least an average crop and will certainly be looking for a home for it.
Seasonally, wheat should be carving out a low any day now. If we happen to get a big downdraft with large volume, that often is a turning point. With the persistently lower prices weâ€™ve had, a short covering rally now could offer much more opportunity on the upside for producers looking to replace cash sales, even it means going to options. I still think you donâ€™t need to look beyond December, because our best chance of a rally is right in front of us, with the seasonal high normally occurring in early October, just before the Australian crop hits the world pipeline.