Wheat prices chop around, influenced by corn
Another week of choppy price action was the story for wheat as it seemed to follow the corn market as much as its own fundamentals. While continuing to feel the pressure from the last stages of winter wheat harvest, it did manage to find some spillover support from a quick jump in corn prices on news that NASS would re-survey corn and sorghum acres in time for use in the Aug 12 supply/demand report. The market assumes the new corn and sorghum acreage will be notably smaller than the estimate released on June 30.
The market was also seeing some fund liquidation in anticipation of the exchanges changing the hedge status of index funds, which would likely make them reduce position sizes by selling contracts, since their positions are almost entirely long positions.
Harvest here in the US is quickly moving north, with combines already rolling in Montana. As the harvest progresses in the central Plains, we see very good yields and much better quality in Nebraska, Colorado and South Dakota. The higher protein should help to offset the lower protein found in much of Kansas, and the market responded this week by seeing a decline in the premiums. Part of the pressure also was the continued movement of old crop spring wheat in the northern plains as producers make room for the upcoming new crop.
While weather here in the US has been quite good for winter wheat harvest, the EU is experiencing some problems with persistent rains just as their harvest is ready to go. It is estimated that they are already seeing some quality losses as a result, and obviously if rains continue, then yield losses will result as well.
Even as the harvest progresses, the market is already watching next year's crop potential. First off, India has seen a very slow start to their monsoon season, with the first five weeks of rain much below normal; rains have been better the last two weeks. But even with two record crops in a row and burgeoning government stocks, the concern over rains is enough for India to once again halt wheat and rice exports- after having reopened those exports just a few weeks earlier.
Looking at the Southern Hemisphere, we expect to see the weather patterns change now that it appears that El Nino will indeed be a factor this year. We see that Argentina received much needed rains across most of their wheat area and into the corn and bean country over the last couple of weeks. The planting season is essentially over in Argentina and while some producers could opt to plant a shorter season variety of wheat, they would sacrifice yield. Therefore, instead of seeing a late surge in wheat planting, it is expected that Argentine producers will instead put those acres into soybeans.
Australia generally has seen a dry spell during the last couple of weeks, after seeing adequate moisture during most of their planting season. If the El Nino pattern continues, the concern is that Australia will again be trapped in a dry pattern during the critical growing season. Obviously, the Australian situation will grab more of the market's attention since they were expected to be a major player in the world export market next year with the prospect of big crop. Argentina, on the other hand, was not expected to have a presence anyway, since what little they would have available for export would likely go to Brazil.