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Wheat market seen as choppy

Wheat traded generally within the range it has been in for the last few weeks. GMO issues were largely ignored last week in the broader wheat market, although the PNW producers are still holding their breath waiting for the all-clear signal from USDA.

Harvest is progressing in the South with little effect on the market. Yields don’t seem to be a surprise to anyone – terrible in the West and good in the East. Protein seems to be higher than expected with test weights from 58 to 62 at this point.

Spring wheat markets are beginning to take on some leadership of the complex this week after the progress report showed North Dakota only 64% planted, up a dismal 1% from the previous week and 25 points behind the five-year average.

 

Producers are seeing prevent plant dates move quickly by as they wait to get into the fields. It is becoming increasingly likely that up to 2 million acres of spring wheat won’t get planted in prime yielding areas. That’s what, about 70 to 80 million bushels of wheat? And that’s if it doesn’t get hot, which the long-range weather forecasts do project.

USDA will release their June supply/demand report on Wednesday, the 12th. They’ll make a stab at estimating wheat and corn, but at best only expect ballpark numbers, especially for corn. There is no way they can estimate what the corn acres number will be at this point, but obviously it will be less than their last estimate. Yields will also be lower but by how much is anyone’s guess as well.

 

Despite talk of more wheat competition coming from India and the Black Sea, U.S. export demand continues to show impressive improvement over the last few weeks. We see China become a consistent buyer when prices move lower; Brazil has also become a common presence for the higher quality wheat. In addition, with old-crop corn (quality) stocks unbelievably tight, wheat continues to be supported by the feed grain market. If spreads between wheat and corn narrow, the cattle feeders are there to buy the wheat.

India is finding itself in a familiar situation with government stocks way above targets and export offers not competitive with the outside world. If the government decides to blink and lower their floor price, world feed wheat prices will likely be pulled lower, but so far they haven’t shown much willingness to lower their prices.

Recent rains across the dry areas of the Black Sea region (FSU) appear to have stabilized production prospects there and prompted projections of large crops and fierce export competition. Russia is already booking new-crop sales right off the combine, but it looks like their government will be competing with the domestic market to restock their supplies.

Typically this time of year, winter wheat is pressured by the harvest, with lows often occurring from mid-June to mid-July. It’s unlikely we’ll see the usual harvest pressure with hard red production down significantly this year and soft red not only seeing strong demand, but also seeing some yields losses to heavy rains and flooding.

The corn charts are giving us a very strong buy signal, after the three-week island bottom was tested this week and prices reversed strongly off of that major support. If corn prices have indeed bottomed, so too has wheat likely bottomed – harvest or not.

 

There is just too much demand for feed grains, and corn supplies will stay tight much longer than normal this year. So wheat prices should continue to follow corn prices until corn harvest supplies become available.

 

With seasonal lows normally coming in around this time of year and the corn market looking stronger, I don’t think this is a good place to be selling wheat. Normally, spring wheat tends to put in seasonal highs in early June, and then begin its long seasonal decline into harvest. But this year I wouldn’t be so quick to sell springs at the moment, either. Losing 2 million acres is a lot to absorb and could take total U.S. wheat stocks below the 600 million mark – not a bearish scenario.

 

Last month, USDA projected that world wheat production would be up 46 MMT but end stocks only up 6 MMT. Europe this week lowered their wheat estimate by 2 MMT, and we will easily lose 2 MMT from the U.S. and likely more. It’s not inconceivable that world wheat end stocks do not improve this year despite the big jump in production – particularly if U.S. corn production takes a hit and more wheat moves into feed markets.

There should be better opportunities to sell wheat over the next few months. Look for weather spikes this summer for pricing, which will likely be led by the corn market.

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