Production Decreases Support Wheat Market
After weeks of pummeling, wheat markets managed to make a stand today, pushing strongly higher even before the important stocks/plantings reports were released. France goosed the markets when they downgraded their wheat crop by another 4 MMT.
European growing conditions have not been great this year, and there is a good chance we’ll see more reductions in other countries before too long. In addition, the Black Sea continues to experience dry and warming weather, much like they’ve had all spring. Ukraine has had some light rains, but southern Russia through the Volga region and into Kazakhstan are in an increasingly stressed situation.
The plantings report was generally bearish spring wheat and corn, with spring wheat acres much higher than expected at 13.2 million acres, 800,000 more than the average guess. Corn acres were pegged 89.1 million, 600,000 higher than the average estimate. Soybean acres were pegged at 89.6 million, 100,000 less than the average estimate.
The stocks report was largely as expected. Wheat stocks as of June 1 were pegged at 1.1 billion bushels, just 10 million higher than the average estimate. Corn stocks were 5.3 billion bushels, right at the average guess; and soybeans stocks were 1.22 billion bushels, also right on the estimate.
Now that the reports are behind us, the market will re-focus on weather and the trade war. At least we can somewhat project the weather. The trade dispute seems to be on the whims of leadership, if you can call it that.
As for weather, it will get hot across the Midwest next week and it looks to stick around until about mid-July. Weather models diverge after that; one model calls for the heat to move back to the southwest while the other hints that it could linger in the Midwest a bit longer.
Lingering would obviously be a problem as that time window is the heart of pollination. Moisture has so far been adequate, coming just in time for key growing regions, but a longer stretch of dryness would threaten yields. Soybeans could afford to lose some yields, but not corn.
With the short corn crop from Argentina, short grain crop in general from Europe and declining conditions in the Black Sea (Ukraine is the world’s third largest exporter of corn), any production loss in the US would be a very big problem.
There is virtually no weather premium in the row crops, with wheat just beginning to add a little premium this week. Prices have been hammered by the ongoing trade disputes, setting up the market for a screamer if the Midwest remains hot and dry beyond the next two weeks.
For wheat, spring wheat is looking at a huge crop with more acres and an excellent start to the season. Winter wheat harvest in the central plains has been delayed by rains, which are likely shaving off some test weights and protein. So far, yields are generally better than producers expected in Kansas, with test weights very good and stellar protein levels. Commercials have aggressively bid for this wheat, which will get blended with lower pro from prior years and add to the bushels available to millers.
Nevertheless, the world will see declining wheat production and stocks this year, along with lower corn stocks as well. The trade has begun to factor in lower European stocks, and I would expect the Black Sea will be next.
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