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Wheat fights off debt crisis -Louise Gartner

Despite the carnage happening in the financial markets this week, grains managed to hold their own. Wheat in particular held up well despite the aggressive selling from the Black Sea and world production that appears to be better than expected. 

Corn continues to be a major supporter for wheat as we see wheat becoming a common feed component; and price rises in corn quickly translate into wheat rallies as well.

USDA released the August supply/demand report on Thursday, with a bullish surprise for beans and corn. The re-surveyed acreage results were included in this report. Spring wheat was lowered by 950,000 acres across Montana and North Dakota, taking total wheat acreage down 1.2 million. Hard red spring wheat production was projected to be down 95 million bushels from last year at 475 million, a drop of 17%.

Durum production was projected at just 57 million, down 10% from last month, and down a whopping 47% from last year. Hard red winter wheat production was pegged at 794 million bushels, down 22% from last year. Soft red winter wheat was 452 million, up 90% from last year. White wheat was up about 8% from last year at 251 million bushels. 

World production numbers were impressive to say the least with total production up 10 MMT from last month at 672 MMT; ending stocks were up almost 7 MMT at 188 MMT. Europe’s late rains saved their season and added another 1.3 MMT to their total, taking it to 133 MMT, down only 1.5% from last year despite drought in the key regions of northern France and Germany and southern England. Germany this week reported that their wheat will grade about 82% milling quality, down a bit from last month’s estimate but certainly better than the dismal 43% from last year’s rain plagued crop.

China pulled a rabbit out of hat this year with wheat production actually higher than last year by 2 MMT at a record 117 MMT; and that was after drought across their major wheat producing region early this spring. USDA left Chinese wheat imports unchanged at only 1 MMT, but that number will likely be much higher as they’ve been importing large quantities of feed wheat. 

India also had a stellar season with a new record production of 86 MMT, a remarkable 5th year in a row of record wheat crops. Their ending stocks are roughly double their target and they’ve removed some export restrictions, but it’s unlikely they will sell much as their domestic prices are much higher than world prices. 

And then there is the Black Sea region. After a wipeout last year, they are back in the game with Russia’s production at 56 MMT, up 35% from last year and close to their previous years’ levels. Their exports are projected to be 16 MMT, up 4 MMT from just last month and 4X last year. Ukraine is just as impressive with production at 21 MMT, up 25% from last year, and exports at 9MMT, double last year.

US corn production was lowered a huge 556 million bushels, and even after shaving consumption from just about everywhere (even from this marketing year), ending stocks were still down 156 million from last month to a very tight 714 million bushels. 

Prices surged on the bullish report with corn reaching limit in the initial reaction, but wheat couldn’t hold its gains very well and even corn couldn’t close limit up. Kansas City and Minneapolis managed to break above resistance but Chicago couldn’t get it done. Kansas City was the first to falter late in the week as rains are coming to at least some of the parched plains, possibly paving the way to better planting conditions. Chicago and Minn were also pulled lower late on Friday after failing to find more buying enthusiasm.

The lack of upward momentum is worrisome, particularly after jabbing above the resistance and then coming back below that resistance. If corn stalls and moves lower, wheat will really have issues. It looks like there is more downside in the near future with wheat still looking to test those July lows. 

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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.

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