Wheat Carves Out A Trading Range
A couple of days this week saw stronger wheat prices, and it looked like the momentum would be enough to take out the early August high, but prices pulled back on Friday, leaving the trading range intact.
Some of the early week support came from the escalating geo-political unrest in Ukraine and Russia, a situation that appears to be getting worse every week.
Still, some of the support also came from the widening problem of quality supplies here in the US and abroad. The early winter wheat harvest in the southern plains saw a great deal of rain induced feed wheat; the rains then settled into the Midwest when soft red harvest, creating yet more feed wheat.
Now we see large swaths of spring wheat country seeing persistent rains and cool temps, reducing what is normally the highest quality wheat to yet more feed wheat – if it can even be used for that. Extremely high vomitoxin levels being reported in spring wheat will likely force farmers to destroy the wheat since it can’t even be used for livestock feed.
This week we heard more reports of quality declines coming out of Great Britain, Germany and Russia. This poses yet more problems as Germany is normally the high quality wheat provider for the European Union and Russia has made great strides over the last few years improving wheat quality for the export market.
A few weeks ago, Brazil hinted that they would buy remaining wheat needs from Russia instead of the US, and two weeks ago we saw them cancel a cargo of hard red winter. They then announced that they would be re-instating their import tariff soon, effectively shutting off suppliers from outside of South America.
However, this week the US export sales report showed that Brazil had purchased two cargos US hard red winter wheat. Apparently they are putting the brakes on buying from Russia; whether it is because of Russia’s military actions in Ukraine or because of quality issues we don’t know for sure. Either way, it was a positive development for the US, particularly for hard red winter wheat.
Supplies of wheat are big; it’s just that supplies of quality wheat are small. Most of those low quality wheat stocks will get pushed into the feed grain pipeline as quickly as possible, especially in the US Midwest where elevators and producers want the storage space for the monster bean and corn crops coming.
In Europe, we’ve seen France already push a lot of their wheat into the feed channel. But they are also buying significant amounts of milling quality wheat from neighboring countries to blend with their own. They will still struggle to supply their normal export markets, namely Algeria, who has reminded France that all purchases must come from country of origin.
The price action is showing wheat continuing to build a basing pattern, suggesting that seasonal lows are in place. Normally, wheat prices carve out harvest lows around mid-July and then rally into the fall months, typically peaking in early October just before the Southern Hemisphere’s harvest begins. The two major producers, Argentina and Australia, will be watched closely for production problems.