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Wheat prices awaken

Agriculture.com Staff 09/05/2006 @ 7:15am

Wheat prices have certainly confirmed the turnaround this week, with traders taking a much closer look at the world supply situation and not feeling very comfortable.

Just when you thought the weather market was over - this week presented continued rains on the EU and FSU harvests, not enough rains in Australia and Argentina for wheat development, and an improving moisture profile for winter wheat planting here in the US.

World supplies of wheat are dropping precipitously; we're well aware of the tight stocks of milling quality hard wheat, but now even soft wheat supplies are tightening with the declining quantity and quality of the remaining EU and FSU harvest. This explains why Chicago has been able to maintain its strength over KC; that and the presence of the funds that will primarily trade in Chicago.

The demand picture is shaping up to be quite impressive. This week, India finally announced their tender for 1.6 MMT of wheat, likely none of which will come from the US because of phytosanitary reasons.

Nevertheless, the continued importing from that country is having a significant effect on world supplies, draining those suppliers near India and forcing other buyers to come to the US. India has not imported wheat in years, but this year is projected to bring in up to 8 MMT due to a short crop and farmer hoarding.

Brazil has already made its presence in the world market known in the last couple of weeks, as they move to other sources after Argentina effectively shut off exports due to a short crop last year and a difficult start to this year's production season. Iraq is expected to announce the results of their tender soon, much of which is expected to come from the US (we've been waiting for the tender results for weeks…).

Even the EU has begun to import quality wheat, with another week of granting import licenses for US wheat, and another week of no exports of free market wheat. They likely will be very slow sellers until they get their delayed harvest completed and have a better idea of what their stocks are.

In the August crop report, USDA projected them to produce 119 MMT (already down 7 MMT from the July estimate), but current estimates from the private sector suggest another drop of 3-4 MMT with another 4-5 MMT downgraded to feed.

But the recent talk has been mostly about Australia and their rapidly deteriorating crop situation.

While it's been dry for weeks and plantings have been delayed and reduced, the trade is finally waking up to the reality of a very serious situation. To date, they've had less rain than in 2002, when they produced only 10 MMT. USDA currently has them projected to produce 21.5 MMT (last year they produced 24.5 MMT), but private forecasters in Australia have them as low as 15 - 18 MMT. With some meteorologists seeing a developing El Nino, the drought is not likely to end any time soon. The timing has become critical for both Australia and Argentina, with planting virtually done and the growing season under way.

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