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New Contract Lows for Wheat This Week

Another tough week for wheat, with new contract lows in Chicago and Kansas City pretty much every day. Funds continue to sell the entire grain space; along with general selling out of longs, they turned net short Chicago wheat and soybeans. After getting whipsawed earlier this summer and taking a beating, they have turned decidedly bearish now that weather is mostly a moot point in row crops. 

Export sales were one of the few bright spots this week. At 634 TMT, it was above the range of estimates and puts the U.S. ahead of the pace needed to meet USDA’s expectations.

Egypt was in for another round of buying, taking 355 TMT of Black Sea wheat, 295 TMT from Russia, and 60 TMT from Ukraine. Prices were lower than last week, but it is also worth noting that Russia offered 1 MMT into the tender, reflecting its eagerness to move stocks. 

World prices are moving steadily lower, led by Russian cash values. Higher protein values are holding well, but the lower protein and feed wheat qualities are into new lows for the year. It is very likely that Russia will continue to lead world cash prices, something they tend to do anyway with just average crop sizes. USDA may have just pegged Russian wheat production at a new record 77.5 MMT, but already private estimates are bumping up again 80 MMT.  

According to the Russian government, the grain harvest so far is averaging 3.98 metric tons per hectare, equating to about 58 bushels per acre, 23% higher than last year. 

There is no doubt that the world will feel Russia’s presence in the wheat export market throughout the marketing year. While wheat will likely find support soon from a seasonal perspective and the likely lower Australian crop, the sheer size of Russia’s crop will work to keep prices in check, likely setting the stage for a trading range type of price action until next spring.

Aside from watching the Southern Hemisphere’s production season, we’ll also look for clues on winter wheat planting decisions here in the U.S. Moisture conditions are generally OK in the central Plains; the farther south, the better. However, prices clearly are not in acreage buying territory. Will farmers continue to move away from wheat, planting even less that last year’s record low? Those decisions are not far off, but the market does not seem too worried about it.

Seasonally, we look for lows by the end of August for both wheat and corn. With small wheat harvests in North America, that would seem reasonable again this year. However, the massive Black Sea production may make it hard to establish lasting bottoms. I would expect that we’ll settle into a trading range for the winter, with higher protein wheat keeping its premium but lower pros and feed quality will likely struggle to find much traction with huge world supplies of both low-pro wheat and corn.

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