Unrelenting harvest pressure
Wheat markets continued to get throttled last week as rapid harvest progress and heavy farmer-selling pressured cash markets and kept steady pressure on futures markets as well. Basis took a hit in many locations for both hard and soft winter wheat as wheat flowed into the pipeline with combines quickly making their way through Kansas. Basis for higher protein is holding fairly well while the lower pro wheat remains under pressure.
While yields are improving the further north the harvest progresses, quality has been mixed. Test weights are running about average with protein just slightly below average. Rains have caused some delays but haven't been steady enough to create any more quality declines.
As the US chews through its harvest, the rest of the Northern Hemisphere is ramping up their harvest as well. The European Union and Black Sea region also had some rains over the weekend which, at this point, looks like only minor delays. Both regions are expecting very good production after a relatively easy growing season.
Canada has pulled offers of spring wheat saying all old crop is sold and will not offer new crop until it is further evaluated. After a very rough start to their growing season, rains have finally come to significantly dry areas, stopping at least for now the deterioration.
India is long past their harvest but still dealing with where to put it. After a record crop last year, they followed it up this year with another record crop, with little room left in government storage. The Indian government has agreed to allow a total of 1.5 MMT to be exported but it will not be subsidized. Their export price is a good $20-30/MT over the Black Sea or US prices into Southeast Asia or the Middle East; therefore, the only country that they're competitive in is Bangladesh.
Saudi Arabia continues to buy wheat, this time taking a total of 440,000 MT of US, Canadian and European wheat. Trade reports suggest that they bought 14% hard red spring US wheat for Sep/Nov delivery.
Taking a look at the Southern Hemisphere, Argentina continues to ratchet down their plantings estimate, now expecting 2.8 million hectares with 96% planted. This is their lowest plantings on record and we can safely assume that they will not be a factor in the export market once again this year. On the other hand, Australia is looking at a great start to their growing season with consistent moisture in the east and recent moisture in the west. To date, they project production to be 22.8 MMT, compared to 21.4 MMT last year and more than double the disaster of 06/07's meager 10.6 MMT.
Informa issued their wheat production estimates, projecting all winter wheat at 1.544 billion bushels, compared to the last USDA projection of 1.492 billion. They expect hard red winter to 915 million vs. USDA at 868 million; soft red at 422 million vs. USDA at 415 million and spring wheat at 502 million.
Seasonally, wheat tends to carve out lows as harvest moves out of Kansas which is usually late June/early July; and this year we are certainly declining into this key time window. The weakness in corn and soybeans is also adding to the negativity. I would think that wheat is close to stamping in its seasonal low even if corn and beans continue on down. With virtually no weather premium built into the row crops, any hint of weather stress could cause the grain complex to move sharply higher, and with the fundamental pressure being removed from wheat, it would easily follow along. I continue to think that the cash markets will be leader higher, with high protein premiums holding their ground throughout the marketing year. That said, itâ€™s difficult to envision sizable rallies in wheat, considering the large world production and increasing world ending stocks, even if US wheat production is much lower than last year. Outside forces could help, but on its own, wheat is likely destined for a trading range during this marketing year.