Wheat Breaks Into New Lows

Winter wheat prices buckled this week, breaking below key trading range support levels. Fundamentals haven’t been able to offer any bullish input, and the dry conditions in the Plains look to get some relief with rain soon. The last crop condition report from USDA showed hard red winter wheat, although sliding the last two weeks, still in relatively good shape as it headed into dormancy. 

U.S. wheat export sales were strong again with 490 TMT sold last week. Most of the sales continue to focus on higher quality spring wheat, explaining the huge move of Minneapolis against the winter wheat markets. A major snowstorm across the northern Plains also restricted movement, further enhancing the spring wheat rally.

Ukraine and Russia both are behind in their wheat exports this season. Rail logistics problems in Ukraine are slowing grain movement and thus, this week they lowered export projections by 1 MMT for the year. 

Russia has also lagged behind its normal pace for a number of reasons. First, farmer selling has been slow so far this marketing year, and that has supported interior domestic and export prices more than normal. Second, their currency has improved along with higher crude oil prices, making their exports more expensive to buyers. And their major buyers, Egypt and Turkey, are experiencing just the opposite with their currencies, having been devalued and making imports more expensive. 

USDA is projecting that Russia will export 30 MMT of wheat this marketing year (July 1 to June 30), but private estimates are moving that estimate down to around 28 to 29 MMT. If that is the case, Russia’s carryover will be very large. With wheat plantings expected to be higher this year, they could well be forced to get more aggressive with offers as we head into next summer.

There was some short-lived concern this week regarding Russia’s grain exports out of their major port at Krasnodar: An outbreak of African Swine Fever in its Southern region had traders concerned that in addition to restricting hog movement, all exports could be stalled. However, that was not the case with Friday’s announcement confirming limiting hog movement, but the grain exports will remain open. 

The Southern Hemisphere’s wheat harvest is in full swing, with progress so far in Australia running about 25% done. In the east, quality is good and yields are excellent. In the west, however, a late frost appears to have done some damage by lowering yields and reducing quality. Even so, production estimates nationwide are increasing as yield results come in, with the range of total wheat production at 31 to 33 MMT, a new record and far above USDA’s last estimate of 28.3 MMT.

Argentina’s harvest is rolling along at about 15% complete, about its average pace. World buyers are hoping for good quality to fill the void in world supplies, but it’s likely that Brazil will scoop up most of Argentina’s excess milling wheat. 

Technically, wheat broke into new contract lows in both Chicago and Kansas City, breaching the important trading range lows that had held for the last two months. This puts the new projection down another 15¢ or so below this week’s lows.

Fundamentals have weakened with Australia’s higher production estimates, and Southern Hemisphere supplies will soon be hitting the world pipeline. The soybean rally hasn’t offered much support since corn really hasn’t followed along. I would expect wheat to find support another 10¢ to 20¢ lower, but it’s likely that we are now in a new trading range with that being the low end, and the lows from the most recent range now becoming the top side. 

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