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Louise Gartner: It's still about weather
Weather remains the key concern for the wheat complex as the Northern Hemisphere tries to wrap up the harvest and the Southern Hemisphere kicks off its growing season.
Persistent rains in Germany have all but robbed the remaining harvest of any quality and are also reducing yields. It looks like what is left in the fields will just grade feed wheat at best and millers in Germany are looking at the Baltic States or Sweden for imports of milling quality wheat.
For Russia, rains have been falling fairly consistently over the last week in the northern regions where winter wheat planting is under way. At least for now, the topsoil moisture looks to be adequate for planting and establishment before dormancy. Of greater concern are the more southern regions where most of the winter wheat is grown, which have not received any rains since the drought took hold. While producers there still have about a month to get the plantings done, the market will be closely watching to see if those critical rains come.
The devastating floods in Pakistan have ruined and/or washed away wheat stocks and forced the government to delay the issuing of 2 MMT of exports that they just approved only a couple of weeks ago.
In the Southern Hemisphere, the concerns remain in Western Australia where rains have yet to really materialize and the growing season is well under way. Good soaking rains are needed now across the western growing regions or more serious yield reduction will certainly follow. The good news for Australia is that the east and southeast continue to get plenty of moisture, bordering on too much in some areas. The expected higher than average yields in the east will help to offset the reductions in the west.
For Argentina, dry and cool conditions are offsetting each other as their season gets under way. But rains will need to fall soon there, too, or yield losses will be imminent. Argentina has not been a major exporter for the last two years as drought ravaged their crops and cut into winter wheat plantings. This year, plantings were higher but still below their historical average.
SovEcon released their latest estimates for Russia’s grain crop and exports/imports. They project that wheat production will 41.5 MMT, down 32% from last year, and 4 MMT less than USDA’s last estimate. Barley production will be half of last year at 8.9 MMT. They also project that Russia will import 1.5 MMT of wheat and 1.8 MMT of barley; they say that total grain imports could reach up to 6 MMT.
Those imports will likely come from other Black Sea countries, namely Ukraine and Kazakhstan. Both of those countries also had significant declines in grain production because of winter kill and drought; and much of what they have available for export will go to Russia, making the entire Black Sea region almost a goose egg when it comes to world exports. After leading the world in wheat exports for the last two years, the Black Sea’s absence has already had an immense effect on world stocks and export activity.
The biggest beneficiaries of their absence have been the US and Europe, both of whom have seen export sales soar since the Russian export embargo. Two weeks ago US exports sales were a whopping 1.4 MMT, and last week were 1.1 MMT. Total export sales so far this marketing year are 13.1 MMT, 55% higher than this time a year ago. USDA is currently projecting that total exports will be 33% higher this year over last year, mostly due to the Black Sea drought.
Also lending support to the wheat complex is the continued disappointment of corn yields in the US. As the harvest works its way into the Midwest, yields are consistently below USDA’s projections and it is widely expected that they will lower national average yields in their upcoming report on Sep 10. This has been hugely supportive for the corn complex as it reaches an 8-month high and continues to add support to wheat as well.
Technically, it looks like wheat will re-test the August 19 highs. It’s unlikely that wheat has enough bullish fundamentals going for it to re-test the major high on August 6, however, so these rallies remain selling opportunities for both short and long term.
This publication is strictly the opinion of its writer and is intended solely for informative purposes. It is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way guaranteed. Futures and options trading always involve risk of loss. Past performance is not indicative of future results.