Wheat market looks for a bull
Wheat markets fell under the steady drumbeat of harvest pressure this week, with nary a bull to be found. Once last weekend's rains were gone, the weather turned hot and dry, and in some areas, really hot and dry. It was perfect harvest weather and the combines moved over serious acreage during the week.
Forecasts suggest that the weather will remain great for harvesting for several days, and progress will certainly catch up to normal very quickly. Harvest reports show yields and quality all over the map. Some key growing regions have come up short of normal yields while other areas are surprisingly better than expected.
While yields may average out, the quality is looking like a different story. Test weights and protein are normal to below in much of KS, with the frost areas coming in with light test weights and low protein as expected. Basis levels in the Plains have remained fairly steady despite a pickup in farmer selling. Overall, however, farmer selling has reportedly been slower than normal.
Soft red areas are finding quality to be even more of a problem with much higher than expected scab issues in the southern states. High vomitoxin levels are common and some elevators in MO and KY have reportedly rejected a few loads of soft red. It looks like there will be a lot of blending of higher quality old crop soft red with this year's lower quality crop. Basis levels have rallied significantly, as mills look to secure the suddenly tight supplies of milling quality soft red.
Harvest is also beginning across the Northern Hemisphere, with Ukraine having started and the European Union into the barley harvest, with wheat expected to start in two weeks. Ukraine is forecasting a 19.3 MMT crop, compared to USDA's last estimate of 18.0 MMT, but still less than last year's 25.9 MMT. They expect their exports to be 7.75 MMT, much lower than last yearâ€™s 12.5.
The European Union had a pretty easy growing season and is expecting good yields across most of the region, but is still expected to cut a smaller crop due to fewer planted acres. France, Europe's largest producer, has been said to have too much rain lately and could be looking at quality issues as a result.
Egypt bought 60 TMT French wheat this week, clearly distancing themselves from Russian wheat that was offered at much lower prices. The recent rift between the two countries over wheat quality and inspection certificates has made Egypt cautious about buying Russian wheat. That said, it was interesting to note that both countries announced that they were working on a long-term agreement for wheat business, which would include higher quality standards and certification from both countries. So, despite recent issues, it looks like Russian wheat will be even more difficult to compete against if they get this agreement in place.
The seasonal tendency for wheat is to find a bottom in late June/early July which typically coincides with harvest reaching northern KS. The quick pace of harvest last week should allow that timing to work. Prices are quickly reaching key support levels and are in an oversold condition, setting the stage for a turn.