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Harvest to dictate wheat prices, analyst says

Wheat is working lower.

Wheat harvest has just started in Kansas. Hot, dry, and windy conditions will accelerate crop maturity and harvesting and likely add to price pressure over the next couple of weeks. Yields so far in Texas and Oklahoma haven’t shown major surprises, but weights and protein appear to be better than normal.

Weather in Europe has improved over the last two weeks, giving some near-term stability to yield prospects. Ukraine has seen plenty of rain, but the southern region of Russia has been hit-and-miss. As most of the exportable supplies come from that region, there is a growing probability that Russian exports will be limited. Russia’s Volga region and Kazakhstan are also showing a hot and dry trend that is affecting early spring wheat growth. 

Here in the U.S., the far Northern Plains into the Canadian prairies are showing signs of suffering, which is also primarily spring wheat and durum. Last year’s big spring wheat crop will help to keep supplies worries in check, but if the weather patterns in the U.S. and Black Sea continue, we could see Minneapolis take on more leadership in the wheat complex. If nothing else, the spreads against Kansas City and Chicago would improve.

Despite a small bump up on Friday, wheat spent most of the week working lower. Harvest pressure, better weather in Europe and a slightly bearish crop report contributed to the negative tone. For the week, Kansas City and Chicago were each down 13¢, and Minneapolis was down 5¢.

Export sales were a disappointing 270,000 mt, of which 63,000 mt. of hard red winter went to China. Even with a declining dollar, it was difficult to stoke much business interest.

The supply/demand report added yet another slightly bearish element to the wheat space. USDA increased all wheat production by 11 million bushels, with hard red winter up 10 of those million to 743 million. That is still down 90 million from last year. Soft red production was lowered 1 million to 297 million, up 58 million over last year. Domestic use and exports were left unchanged from last month. U.S. ending stocks were pegged at 925 million bushels, up 16 million over last month, but still a six-year low.

World production figures saw some notable adjustments. India was bumped up 4.2 million metric tons (mmt) to a record 107.2 MMT. With near ideal planting weather, Australia’s production estimate was increased by 2 MMT to 26.0 MMT. Russia was left unchanged at 77.0 MMT, while Ukraine was lowered 1.5 MMT to 26.5 MMT. Europe was lowered 2.0 MMT to 141.0 MMT.

World production is forecast at 773 million metric tons; end stocks are forecast at a record 316 MMT, up 6 MMT over last month.

Russian FOB offers continued firm at $207 to 210/MT. Record-high domestic bread and flour prices are underpinning export offers. With the prospect of reduced high-protein spring wheat production, there is a good chance that Russian wheat offers will stay firm. That said, they did manage to secure all the business with Egypt last week, selling 120 TMT.

I look for wheat to stay under pressure until we see harvest well into Kansas, which is likely late June. With potential weather issues brewing in Russia, we do not want to get overly bearish. We’ll just bide our time to get past the typical harvest weakness, then be in position to take advantage of a run if the weather stays dry in the Black Sea.

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