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Wheat Markets Continue Lower, Outlook Remains Bearish

It was another bearish week for the wheat complex, this time with Minneapolis leading the way down on a drop of 26¢, following closely by Kansas City with a loss of 20¢, and then Chicago at half of those losses at 9¢ lower.

Production prospects are ramping up almost everywhere you look, with above average yield potential a strong probability in U.S. hard red winter wheat pretty much from Texas to Montana. Spring wheat has huge potential as well, presuming it gets planted as rains and cool weather slow progress. Soft red is the least likely to see a big jump in production, thus is seeing less selling pressure.

U.S. spring wheat plantings were forecast to be lower than last year, but STATS Canada reported this week that their spring wheat plantings are expected to be 2.1 million acres higher than last year, making up for the U.S. decrease.

While much of Canadian crop areas have trended slightly on the dry side this spring, recent rains will help get farming started. Of course, most of the U.S. Northern Plains have abundant/too much moisture and our crop is expected to start out well.

At this point, while still early in the growing season, we don’t see any weather threats to major production regions across the Northern Hemisphere. Thus, the market is beginning to pencil in increasing production in the rest of the Northern Hemisphere, particularly in the world’s prices setter of Russia. Recent rains across the Black Sea were very timely and keep big production prospects on tap for Ukraine and Russia.

In case we needed more proof the bear is firmly in control of this market, this past week Russian old crop prices dropped about $3/MT to $221-224/MT. However, new crop prices are significantly lower at around $187-190/MT. That equates to about a 92-cent/bu discount to old crop. Already, Russian sellers are positioning for aggressive sales once harvest begins. Again, this assumes no weather scares; it could be a screamer market if a sudden production problem arises.

Increasing world stocks would ultimately weight on the Chicago market, but for now the broader market is focused on a big jump in quality milling supplies. Kansas City has been discount to Chicago for months, but Minneapolis has maintained a wide premium for just as long. That premium is ultimately likely to erode significantly over time if we don’t get a weather issue in the northern plains/Canadian Prairies.

Doom and gloom aside, we continue to see solid export sales and will reach USDA projections by the end of the marketing year on May 31. That said, it is well known that both the Black Sea and Europe are quick to match U.S. offers into key markets of North Africa. With old crop exports still flowing out of both regions and large new crop projections, it is clear world export competition will remain intense for months to come.

The normal seasonal pattern would have wheat rallying into early May, then headed south into harvest. Even a small bump could be construed as a seasonal rally, so we’re watchful for even a small, short-covering rally in the near term. If we don’t get any kind of a push higher before around May 10, then there is a good chance that we’ll have a seasonal low into early May rather than a seasonal high. We’ll know here shortly how that will play out.

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