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Wheat Supported by Harvest Delays

Wheat markets pushed higher this week, mostly on short-covering ahead of the long Memorial Day weekend. But the catalyst for the rally was largely fundamental, as rains pummeled ripe wheat fields from northern Texas into southern Oklahoma, either stalling harvest or preventing it from starting altogether.

Crop analysts have been projecting a low-protein crop from the southern Plains due to season-long abundant rains leading to higher-than-average yields. Now the long harvest delays are bound to affect quality even more, and if rains continue as forecast for the next two weeks, we’ll likely see yields decline as well. Already, we see feed wheat working into feedlot rations, and that will likely continue through the summer, displacing corn.

While the hard red winter wheat crop is not welcoming the rains, the spring wheat crop certainly is. After a dry early spring, rains have been widespread and consistent across the northern Plains up into Canada’s prairies. Spring wheat plantings are down an estimated 14% this year, but the good growing conditions could have strong yields offsetting some of those lost acres. We saw Minneapolis start to lose to Chicago this week, with more losses likely.

Global wheat production estimates continued to increase this week, with both Ukraine and Russia lifting estimates. Russia is now projecting a record 63 to 64 MMT wheat crop, and an all-grain crop of a record 106 MMT. USDA has Russia’s wheat estimate at 63 MMT. Ukraine lifted its wheat production to 23 MMT, with USDA at 24.0.

The International Grains Council reported this week that global all-grain stocks this year would be a new record. It is worth noting that 40% of those stocks will reside in China. China will own 46% of the world’s wheat stocks and 49% of the world’s corn supplies, as projected by USDA for the 2016-17 market year.

By the way, China began its auctions of domestic corn supplies this week, and buyers surprised the market with good demand and strong prices. China is expected to begin soybean auctions in June. The auctions are designed to lower the burdensome government supplies (that are deteriorating in quality) and will offset a significant amount of feed grain and soy imports for the coming marketing year.

Wheat export sales last week were on the disappointing side, with -10 TMT for old crop and 355 TMT new crop. The marketing year officially ends May 31, so all new sales will be new crop. We’re seeing new-crop offers out of the Black Sea that are discount to U.S., and once their harvest begins in a few weeks we’ll likely see them get much more aggressive — as will the Europeans.

There was some noteworthy activity in the export arena this week, with talk that Brazil bought 150 TMT hard red winter. They’ve been thought to have oversold their wheat supplies last winter, and now are having to import. There is chatter they may have done the same thing with corn after a dry spell knocked second-season corn yields lower. That harvest is just beginning.

Other noteworthy news this week was India purchasing a substantial amount of wheat — 500 TMT from France and Australia. Two years in a row of reduced production has them looking for imports to at least blend with plenty of low-quality wheat in government stocks.

Technically, wheat had a nice rally that took it to the highs of last week. Managed futures and hedge funds have carried a net short position for a record 42 weeks in Chicago wheat, but this week they likely did some short-covering.

Yet, the overall fundamentals are negative unless we get more weather problems in a major producing region. Huge global production along with record carryover will continue to weigh on this market, particularly once harvest really gets rolling over the next month here in the U.S. and the rest of the Northern Hemisphere.

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