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Wheat Prices Stay In Trade Range

Narrow trading has been the theme for weeks.

Wheat markets started out the week under pressure, then quickly had a small recovery, only to let most of that go by Friday’s close. Trading ranges have been narrow for several weeks as fundamentals don’t support major moves in either direction.

The record world stocks and impending Southern Hemisphere harvest are certainly casting a bearish tone. However, world trade and notably U.S. exports have been stronger than expected so far this marketing year, offering solid support at the summer lows.

U.S. export sales were a solid 672 TMT last week, with spring wheat accounting for almost half of the sales and unknown taking more than half of the spring wheat. World trade has been robust, far better than last year by this time, and world prices have slowly made their way higher in response.

Russia, which largely sets world price this time of year, has been an aggressive seller of its record crop. They’ve also have managed to pull their own prices higher, mostly on higher crude oil values, a stronger ruble, and a steady stream of Egyptian business. This has allowed world prices to creep higher as well.

Quality, of course, has been the headliner for wheat this year; recent developments suggest that the tight supplies of milling wheat could well be getting tighter.

First we look to Canada where harvest has been stalled for much of October. Progress reports out of Saskatchewan show wheat and durum harvest is only about 82% complete, compared with the average of 99%. In the last two weeks, that has only improved by 2%. Oat and barley harvest is only about 70% completed. Saskatchewan is estimated to have about 2.8 MMT of wheat and durum still left in the field. Alberta is estimated to have about 2.0 MMT of wheat and durum still in the field. Already, crop analysts are suggesting that those crops may be abandoned as rains have reduced yields and quality.

Next, we turn to Brazil where wheat harvest in the southern regions has also been delayed from rains. Yield losses are already estimated at around 20% in that region and obviously, quality is down significantly as well. Brazil demands some of the highest quality wheat in its milling facilities, and we would expect they’d import more from Argentina where it normally gets most of its import needs met.

However, as we look at Argentina’s crop, it’s also been experiencing too much rain on the wheat fields, and yellowing is noted in key growing regions. Most of the wheat isn’t mature yet, so there is time to dry out; but harvest will be starting as we get deeper into November and analysts are voicing concerns about quality losses.

The quality problems will largely play out in the cash markets, but futures will get some action as well. Minneapolis has performed very well against the Chicago market since the summer’s lows. Much of this month has seen a correction from that rally with Chicago finding support from the corn market that looks like it has formed its seasonal lows.

Kansas City has also moved higher against Chicago but not as much as Minneapolis. It too, has recently seen a small retracement in the spread. I would look for both of these quality markets to continue their upward trend against the Chicago market over time, with springtime likely the strongest time window.

It is worth mentioning that U.S. winter wheat conditions are better than last year, but recent warm, dry, and windy conditions across the Plains are stressing crops and have crop analysts on alert. Rains are forecast for early November, but either way it is unlikely the market will react to potential crop problems until we break dormancy – and that’s a long way off.

I look for wheat to stay within its recent trading range as we move through the fall, presuming normal harvests in Argentina and Australia. Corn will likely trade in a range as well, helping to keep wheat prices fairly tight.

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