Report erases wheat's momentum
Wheat prices managed to hold together early in the week, waiting for the supply/demand report. But a bearish slant to the report was all it took to erase the upward momentum and send prices lower. It appears that the ‘February Break’ is well upon us, and if that seasonal tendency continues it could keep pulling prices lower for the next couple of weeks.
It was interesting to see wheat falter this week, even as the cold snap across Europe has crop watchers scrambling to assess winter kill damage. The assessments are getting bigger as the cold lingers on in many areas that had little or no snow cover.
Ukraine is leading the way with estimates of severe damage in the south and east, mostly for rapeseed and barley, but wheat is also expected to see a significant setback. They’d already had a rough start with plantings down due to dryness, and now with the cold damage they are projecting that as much as 40% of the sown area is wiped out, roughly 8.5 million acres.
Russia is projecting losses of around 8%, which is about normal for them. Bulgaria and the Czech Republic also are reporting widespread losses. Western Europe is certain to see losses as well, but estimates have been slow to develop from that region.
Thursday brought the much-anticipated supply/demand report, with the trade bracing for the adjustments coming in South American production and exports. Most of the changes in the crop report were in line with trade expectations.
US wheat exports were increased 25 million bushels, with ending stocks down a like amount to 845 million. Those ending stocks were slightly lower than trade estimates and would have had a bullish impression but USDA also raised world ending stocks another 3 MMT to 213 MMT, another all-time high. Most of the stocks increase came from India, not known for being either an exporter or producer of high quality wheat. Nevertheless, the big increase was another reminder that neither the US nor the world is anywhere near a shortage of wheat.
The same can’t be said for corn, where stocks are anything but comfortable. USDA did lower Argentine corn production by 4 MMT, and took their exports down by 3.5 MMT. In turn, they raised US corn exports by 50 million bushels (1.2 MMT), with ending stocks lowered by 45 million to 801 million bushels, the lowest in 16 years.
Exports sales for wheat continue to be very strong, with this week’s report showing 707,000 metric tons sold last week, the largest so far this marketing year and well above trade estimates. The bump in US wheat sales is a combination of a slowdown in sales and loading problems out of the Black Sea and Europe (weather) and a weaker dollar against the euro. After a slow start, the US export pace is quickly catching up with where USDA is projecting us to be, even after this month’s increase of 25 million bushels. We see demand shifting to other exporters as well, with Southeast Asian buyers moving from the Black Sea origins back to Australia.