Wheat follows corn higher-Rich Nelson
Wheat was able to follow corn today. Its close attachment to corn as a feed substitute has tightened their pricing relationship. Weekly export sales this morning were 16 million bushels (424,200 tonnes). That is under the five year average pace of 23. It has to be said that recent sales are a little disappointing. The past four weeks of sales have run 23% under normal. If that continues then sales will end at 1.016 billion bushels. USDA is hoping for 1.050. It is clear increased supplies from competitors (Russia and Ukraine) are hurting our sales.
Wheat Feeding: In previous supply/demand reports USDA had raised the issue of Southeastern pork and poultry producers substituting soft red winter wheat for corn from June through August. Judging by price movements since the last supply/demand report to current, things have improved for that argument. Allendale estimates wheat holds a 5% higher value than corn for hog and chicken producers.
Wheat had a 9 cent discount to corn on the last supply/demand report. Currently wheat holds almost a 23 cent discount to corn. There is a chance USDA could slightly increase its wheat for feeding estimate.
Wheat For Ethanol?:
To date, there is only one ethanol plant in the US which publicly lists wheat as a main feedstock. That is the White Energy plant out of Russell, Kansas. We find it interesting that the three eastern Corn Belt plants run by the Andersons are now mixing in a little wheat into their corn mix.
Last week’s quarterly Grain Stocks report showed June 1 wheat stocks at 861 million bushels. This marks the end of the marketing year for old crop. USDA will revise their 809 estimate to this number. That also means 52 million extra bushels will be added to the new crop supply as beginning stocks. The trade looks for new crop ending stocks to be raised from 687 up to 711 million bushels. The rest of the trade looks for higher beginning stocks to be partially offset by better feed use. Allendale estimates stocks a bit higher at 753. While we respect the feed use argument we look for USDA to lower exports. For now, we suggest September Chicago downside is limited to $6.20. Upside potential could be $7.20…Rich Nelson