New crop wheat values to stay awhile
Well, the wheat complex surged higher again this week, with Minneapolis breaking the magical $10 mark, led by an unrelenting cash market for spring wheat, white wheat, durum, hard red winter - pretty much all wheat except for soft red, which will likely become a shining star when we run out of everything else.
At this demand pace, there is a real fear of doing just that. Canada shaved their spring wheat production by another .5 MMT, taking total wheat production to 20 MMT, down over 5 MMT from last year. The Argentine government extended their export registration halt to Dec 20; even if they do resume exports, it will likely be small since most of their projected exports had already been sold.
Demand has resurfaced in force, with India trying to wrap up their 1 MMT tender, with close to half of it done so far. Next week, they say they'll be in for about 550,000 MT. Egypt was active this week with two snap tenders, for a total of 175,000 MT, all of which went to Russia. They also say they might be in for more next week. Pakistan, Morocco, and a host of other business all trying to capture their share of the dwindling supplies.
And then there's the weather issue. The frost in Argentina fanned the smoldering embers in the old crop futures, but the underlying strength in the new crop has, and continues to be, the extremely dry (and getting drier) conditions in the western plains all the way north. The latest Drought Monitor map shows virtually the entire hard wheat growing region in at least some drought status. From Texas all the way to Montana, including almost the entire state of North Dakota, it showed us in a drought situation. That makes for very skittish new crop price action; yes, even this early and even when the crop is dormant.
On top of that, India has also gone into drought status. There, too, virtually the entire wheat production region is in a drought condition. This is actually a worse situation than here in the US, since India's growing season starts in just a few weeks, and they're still trying to finish planting. You may recall, India actually started this long term bull market almost two years ago with a short crop and has spent two seasons buying wheat on the world market after an absence of six years. Being the world's second largest wheat consumer, neither they nor the world can afford a serious crop production problem in their country.
So, where does this take us? Well, users will have to fight it out for remaining supplies of old crop. Cash will continue to be the leader of the wheat complex, especially for the quality hard wheat. Russia and Kazakhstan will continue to reap the bounty if they keep their exports open and flowing. It has been suggested that even if Russia does indeed halt exports in January as has been rumored, it will only have a limited effect since most of their wheat has been moved out of country already and their ports usually freeze up in winter anyway.
As for new crop futures, they are unlikely to give up much of their gains until the market is comfortable with new crop supplies. Considering the numerous problems that have surprised us in the very late stages of the growing seasons and/or harvests around the world, it wouldn't surprise me to see those new crop values hold until the combines are in the field.