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Wheat market slides-Louise Gartner

Wheat continued its slide this week, giving up another 87 cents in Chicago, 63 cents in Kansas City and a brutal 103 cents in Minneapolis. Corn was just as ugly with a drop of 87 cents. The selling was relentless as the index and hedge funds ran for the exits on a sharply higher dollar, harvest pressure, good growing weather in the Midwest, and apparently a sudden realization that not everyone thinks ethanol is the second coming. 

European sovereign debt problems resurfaced as the problem of the week and pulled the euro sharply lower, thereby spiking the US dollar higher and adding pressure to much of the commodity complex.

Front month corn was on its face all week, and drug an already bearish wheat complex even lower. Despite numerous reports of increased wheat feeding just about everywhere in the world, wheat just couldn’t find traction as the rationing process in corn seemed to alleviate fears of feed grain shortages. 

Planting problems were less of an issue, even though they are still a serious problem. Informa released their latest plantings estimates this week. Spring wheat acres were pegged at 13.3 million, down 700,000 from their latest estimate. Corn acres were projected at 90.6 million, just 100,000 less than USDA’s latest estimate; soybeans were 76.4 million, 200,000 less than USDA’s estimate. 

The Canadian Wheat Board released production estimates this week, with spring wheat estimated at 15.9 MMT, 1.2 MMT less than last year. Durum is estimated to be 3.8 MMT, up .8 over last year; and barley is projected to reach 7.7 MMT, up .7 from last year. They projected that 6 – 8 million acres would likely go unplanted and expressed deep concern that the late plantings created a high risk for fall frost damage.

The European Union also released some production estimates for soft wheat. They expect a 125.6 MMT crop, down 1% from last year. Most of the losses are coming out of Western Europe as that region will see a 7 MMT drop in production due to drought. France is expected to see a 15% decline, Germany an 8% decline and United Kingdom will see a 14% drop in wheat production. Their exports are also projected to be16 MMT, a decline of 6 MMT from last year. In the last two months, European wheat production estimates have dropped 10 MMT. Barley was also projected to be down 2% from last year. 

In contrast to the production problems in Europe, the Black Sea countries are on track for a very good year. The recent rains should bring the winter grains to the finish line and spring grains are off to a good start. It’s worth noting that July was the month last year that an intense drought crippled much of their spring crops, so they still have a way to go before they can feel totally comfortable.

Nevertheless, Russia has set July 1 as the date for removing export bans and grain merchants are eager to regain their markets. Buyers, on the other hand, are wary of committing to large quantities of Russian wheat after being stiffed on contracts last year. For instance, Egypt was back in the market this week for the first time since February, but did not accept or consider offers from Russia. With a damaged reputation for reliability, Russia may find it difficult to regain its foothold in the wheat export market, so expect to see heavy discounting from them to earn some business.

Harvest is progressing quickly through the central plains, despite some rain delays. Yields are all over the map but generally seem to be a bit better than expected. Quality is very good and buyers are eager to buy for blending purposes. Prices have weakened through the harvest season, which is normal price action – even with a short crop. Usually, the seasonal lows come in the mid-June through mid-July time window, which we are now entering. We’re already at long term support levels but the market seems to be struggling to find much buying down here. The lows could be a final washout to the downside or just a basing pattern, but I would look for them to come soon.

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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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