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Strong Exports Push Wheat Higher

Wheat markets surged higher on Friday, responding to a stellar export sales report. The market has been waiting for a sign that business is shifting to the U.S., and although this is just one report, the timing suggests more good reports could well be coming.

We normally see a drop in Russian sales this time of year, leaving less competition for the U.S. This year, we’ll not only see less Russian sales moving forward, but Southern Hemisphere supplies will be limited as well, with the drought reduced crop from Australia and limited quality supplies from Argentina.

The bulk of the export sales went to hard red winter wheat at 33% of the total. This report also showed the 120 TMT purchased by Egypt, making up the majority of the soft red purchases.

Egypt was back in the market this week, buying 350 TMT total – 290 TMT from Russia and 60 TMT from Ukraine. They had to announce that they could secure funding for previous sales already being shipped to entice enough offers for this tender. Prices were slightly higher than their last purchase, suggesting world prices will creep higher as well.

Also supporting the wheat market were rumors that winter wheat plantings would be down again this year to a 100-year low. Most of acreage drop will be hard red winter, but also some soft red. It was a difficult seeding season, to say the least. Persistent rains across the southern plains up to the northern plains kept producers out of the field. Many of the acres that did get planted were late, putting them at increased winter-kill risk.

While there is little correlation between fall condition ratings and final yield, it stands to reason that the market will be extra sensitive to production issues next year. We could also expect the market to turn to spring wheat to ensure enough wheat acres. I also think that that won’t be an especially difficult task, as northern plains farmers were already moving back to spring wheat last spring and as pulse crops have lost some of their market share.

STATS Canada published their latest production report on Thursday. All wheat at 31.769 MMT was 300 TMT above estimates, and 769 TMT above last year. Not really a surprise to the market, which took the numbers in stride.

We’ll get our own supply/demand report on Monday, likely to contain adjustments for the Southern Hemisphere and the Black Sea, but little changes are expected for U.S. stats.

Technically, prices were well supported again near harvest lows just before they bumped higher. I would expect pullbacks to be viewed as buying opportunities, looking for a rally into the spring.

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