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Wheat trades sideways

The main topic of conversation in the wheat complex this week was whether Russia would impose export restrictions after their meeting of the Ag Ministry. After weeks of the Russian government insisting there would be no restrictions, they restated that sentiment after their meeting.

The markets reacted negatively to the announcement as many had felt some kind of restriction was imminent. That may ultimately happen, but for now the door is wide open for Russian grain exports. Not that it wasn’t wide open before, with very aggressive sales announced last weekend to Egypt that were $30/ton under European offers and $50/ton under US offers.

Late on Friday, Egypt announced another tender. We’ll know the results by the market’s open Monday evening.

While the prospect of continued Russian sales is bearish, the likelihood that they won’t be sellers for long is viewed as supportive in the bigger picture. Estimates of when they will run out of wheat range from mid-October to mid-November. 

After the Black Sea supplies are exhausted, the market will still see plenty of competition between the EU, US and Canada. India is also becoming a larger presence in the region as their export program picks up steam. They have allocated 3 MMT for sale, with sales so far at 1.3 MMT. They have several offers out to the marketplace and buyers are becoming more active. 

Also, by the time Oct/Nov rolls around we’ll be seeing the Southern Hemisphere’s wheat harvest begin. We’re still watching those crops develop, but we know that there will be more competition once their harvest is complete. 

Argentina’s crop was off to a very good start, but recent heavy rains have possibly damaged some wheat. Australia’s crop is more suspect with continued dry conditions in the west and northeast. There are rains forecast for those areas in the next few days and they will be extremely important as the wheat moves into the reproductive stage.

Exports are hanging in there but are still behind the pace needed to reach USDA’s projection. With one quarter of the marketing year now finished, total sales are 34% of projections, well behind the normal pace of 47%. 

For the next few months, wheat’s main price direction will still be dominated by corn – whatever direction that goes, which I believe will be generally higher. Harvest pressure for corn will likely be minimal, particularly with the rains delays expected over the weekend slowing down farmer movement. In addition, there is ample storage available if producers decide to wait out the market. We’re also hearing more reports of aflatoxin in corn, which only makes the tight supply situation worse. 

After factoring in the short crops out of the Black Sea, wheat appears now to be settling into another trading range which I could see lasting through the winter, much like last year. Downside pressure should be limited because of the huge base of support in corn, but upside is also likely limited by the adequate stocks of wheat throughout the world - particularly among the major exporters. 

From a technical perspective, major support for Dec Chicago wheat comes in at the swing low of 8.57, with the topside resistance in the 9.50 area. As for new crop futures contracts, prices have held at the top end extremely well, despite the prospect of huge winter wheat plantings and a much improved moisture situation. 

Perhaps the market wants to encourage as much planting as possible and will hold these values throughout the next couple of months to achieve that goal. If we do get those plantings, it seems likely that these lofty values could deflate rather quickly, so pricing at least some of next year’s crop would seem prudent.

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