Wheat Market Sees Lots of Gaps, Has Nothing to Show for It
The grain markets opened the week with a gap lower following a weekend of better than expected rains through much of the Midwest. Tuesday saw corn and beans then gap higher following worse than expected crop condition ratings, but wheat couldn’t get above Monday’s gap. By the end of Tuesday, corn and beans were lower, failing to hold their island bottoms.
The rest of the week was basically sideways for all three markets as cooling tempertatures offset expect continued dryness across the northern plains and into the western Midwest.
This time of year, most eyes are understandably on weather in the Midwest and its affect on corn and beans. However, wheat has remained in the headlines all summer. After a disastrous season in the southern plains, the northern plain had their turn with the worst drought since 1988. The drought has been working its way north, affecting Canadian crops as well. It’s also creeping into the Midwest, slowly drying soils as the row crops work through their important pollination stages.
Now, we see weather affecting wheat in Europe and Russia as they try to get into their own harvests. Rains have been plaguing the harvests in northern Europe and central Russia, with analysts beginning to reduce yields and quality.
The quality issue really stands out, since here in North America we see quality wheat supplies at critically low levels, which means world quality supplies are at critically low levels. That problem won’t be resolved this year, and it is debatable if spring wheat prices are high enough to buy back acres from a plethora of crops across the northern plains. Years of low prices have pushed producers into other crops and it will be a heavy lift to get them back, particularly if the expanding dryness into the Midwest lifts corn and bean values this summer.
Egypt is becoming a very familiar face around the wheat complex this summer, as they’ve been steady buyers almost every week. This week they picked up a hefty 420 TMT, all from the Black Sea region at prices about $1/MT lower than last week.
World prices of lower protein wheat have declined slightly over the last few weeks, while higher proteins have improved, further widening the spreads between the higher and lower grade wheats. With the recent rains in Europe/Russia, we’re seeing world values of higher protein wheat start to surge.
The spring wheat tour took place this week, with the average spring wheat yield estimate for North Dakota at 38.1 bu/acre, down from 45.7 last year; durum average yield was pegged at 39.7 bu/acre, down from last year’s 45.1. Those figures don’t include abandoned fields, of which there were many in the western regions.
As we move forward, weather will still be key for the next few weeks. The August 10th supply/demand report will have new yield and production forecasts, likely lower for all major grains and lower for world wheat production.
Technically, prices are obviously struggling to maintain any upward momentum. That said, downside pressure will likely be limited with yields moving lower, but it will take more weather issues to give us anything better than this summer’s highs.
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