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Wheat finds a lifeline-Louise Gartner

Wheat had a reprieve this week with prices closing higher on the week for the first time in five weeks. Interestingly, Chicago was the stronger market with Kansas City and Minneapolis barely tagging along. Chicago was up 11% on the week while KC was only up 1% with Minneapolis up 2%. 

Funds were very active across the commodity space with the new month, new quarter and Goldman stating that they expect commodity supplies to stay tight as the world’s economies continue to grow. The disappointing US jobs number on Friday may not confirm that attitude, but traders were heavy buyers of just about all commodities during the week.

To see Chicago higher even as Russia burst into the export market was truly remarkable. Domestic demand for available supplies of soft red had the July contract surging higher as deliveries have been light, and users are trying to keep stocks out of storage. Reports of The Anderson's Inc using wheat in their ethanol blend certainly stoked Chicago futures as well as corn being sharply higher.

Russia landed some large sales this week, with Jordan stepping up for 150 TMT and then Egypt taking 180 TMT. Egypt’s declaration of not considering Russian wheat until new crop supplies were evaluated lasted all of about two weeks. Prices were just too cheap for Egypt to pass up. 

The export picture looks pretty tough considering the discounts Russia is willing to offer, particularly considering that Ukraine will be just as competitive. Ukraine is trying to get their harvest into full gear, but persistent rains have caused delays and crop analysts there are projecting as much as a 30% loss in yield. That doesn’t consider the likely quality declines they’ll see as well. Whatever Ukraine’s final production numbers are, they will still be aggressive exporters at least in the near term.  

USDA will release the July supply/demand report on Tuesday, using the acreage and stocks numbers from the bearish June 30 report. While there are plenty of skeptics about the reliability of those numbers, the trade will have to deal with them for another month. It won’t be until the August report that the updated statistics from the re-survey will used. 

Until then, the guesses will keep coming about actual corn, spring wheat and durum plantings. Anecdotal evidence suggests significant drops in plantings in the four northern states to be re-surveyed – Montana, North and South Dakota and Minnesota. That doesn’t include late planted crops that have a high risk of not maturing before frost hits. This growing season will be most interesting to say the least. 

Weather has come back into the conversation, this time hot and dry conditions moving into the Midwest from the plains – and we all know how intense those conditions were. The forecasters don’t call for the heat to linger, but there are regions that have already developed some dryness issues and more heat without rains first could start to spell trouble.  With little to no weather premium in the price structure, the market will be on edge as we move through the critical July/August pollination periods, especially considering that much of the corn crop will be pollinating late when there is typically more heat. 

Technically, the wheat market managed to come up for air after taking a beating over the last five weeks. It was disappointing to see the quality markets of Kansas City and especially Minneapolis be the laggards, while Chicago took off higher. In fact, even though Minneapolis was higher, the bear spreads were still working, which is not a bullish signal. Wheat was very oversold, and needs a few days of steady to higher price action to bring indicators out of the oversold range. However, because it was so oversold, it is likely that prices will re-test the lows one more time before we can be more confident that a longer term low is in.

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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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