Wheat Market Comes Up For Air
After a grueling month of steady downward pressure, wheat finally showed signs of life this week. Despite harvest gearing up in the southern plains, wheat managed to rally for a couple of sessions this week and closed on Friday strongly higher, led by Kansas City.
Harvest is off to a slow start even though there isn’t much to harvest in Texas or Oklahoma. Recent rains have slowed progress with more rain in the forecast concerns are mounting about quality issues. Harvest reports so far aren’t offering much of a surprise, with yields way down in both states. Keep in mind, also, that much of the wheat in the far western southern plains is already zeroed out and won’t be included in the average yields.
Informa updated their winter wheat production estimate this week, basically bringing them in line with USDA’s estimates. Total winter wheat is pegged at 1.396 billion bushels, compared to the government’s estimate of 1.403 billion. Hard red winter was pegged at 744 million, with USDA at 746 million. Soft red was estimated at 447 million, exactly equal to USDA’s estimate.
Export sales were light at only 2 TMT to finish off the 2013/14 marketing year, and disappointing for new crop at only 341 TMT. We still see major competition from the Black Sea region where political issues have calmed down and both countries have taken advantage of weaker currencies to ramp up their sales. Russia’s customs date reported that wheat exports from January to April totaled 4.3 MMT, compared to the same period last year of only .619 MMT.
Russia has made huge investments in building new ports and improving existing facilities to allow for exports throughout the winter months. Those investments are clearly paying off and their competitiveness is being enhanced by their devalued currency.
Russian exports are poised to decline, however, if recent weather pattern persist much longer. Rains in the key growing areas of southern Russia and the Volga River Valley have seen very little rain for the last several weeks. Some reports suggest that wheat is being stressed, but some crop analysts are cautioning that it is still too early to project yield declines. Obviously, a weather problem in those key regions coupled with a short crop here in the US could be a game changer for the market.
Elsewhere across the Northern Hemisphere, we see wheat crops in pretty good shape. Europe has come on strong after a dry start and looks set to harvest another near record crop. China is well into their winter wheat harvest and could see record production. In the Southern Hemisphere, planting is underway in Argentina and Australia. Both are seeing good moisture and planting conditions, which for Australia could be critical as the probabilities for an El Nino are looking very high, increasing the likelihood for a dry spring and summer for eastern and southern Australia.
Technically, Kansas City and Minneapolis put in weekly reversals higher while Chicago closed well off the weekly lows but wasn’t quite enough for a reversal. Harvest lows usually come from mid-June to mid-July, so a low here would be a bit early, but the weekly reversals could be enough to spur some short covering and stamp a seasonal low.