The week's active prices eventually escaped the wheat market

Wheat prices could see a Thanksgiving rally, analyst says.

Wheat markets were lower for the week, but it wasn’t for lack of trying.

A supply/demand report that boosted corn and soybeans higher initially pulled wheat higher as well, but the gains couldn’t hold, and all three contracts were lower for the week.

Chicago was down 8-cents, Minneapolis down 2 and Kansas City down 3. In contrast, corn was up 4 while soybeans had another stellar week with a 43-cent gain.

Increasing dryness in Brazil and Argentina, fueled by the second strongest La Nina on record, is delaying seeding and stressing early growth in corn and soybeans. A massive buying program in both markets by China had already established demand-led bull markets, and now weather is threatening production for the two major producers/exporters. If near term dry forecasts verify, we will likely see soybeans and corn move significantly higher as the growing seasons are just beginning and yields will take a big hit. In addition, wheat will likely tag along with that rally, led by Chicago. 

Tuesday’s supply/demand report sent a bullish shock wave through the corn and soybean markets, reinforcing the strong fundamental makeup of those markets. US corn yields were lowered 2.6 bu/acre to 175.8, and production was decreased 215 million bushels from last month to 14.5 billion bushels. Export were raised 325 million to 2.65 billion, and ending stocks were lowered by a whopping 465 million to 1.7 billion, the lowest since 2013/14.

In soybeans, yields were lowered 1.2 bu/acre to 50.7. Production was lowered 98 million to 4.17 billion bushels. Ending stocks now sit at 190 million bushels, down 100 million from just last month which is a 34% drop. It is a 65% drop from last year’s 523 million and down 79% from two years ago when end stocks were a massive 909 million bushels. Argentina’s production was lowered by 2.5 MMT 51.0 MMT due to the ongoing dryness. Brazil’s soybean production estimate was left unchanged at 133.0 MMT.

In wheat, USDA increased domestic use by 6 million bushels, left exports unchanged and took end stocks down 6 million to 877 million bushels. That is down 151 million from last year, a 15% decline. Argentina’s production was lowered 1 MMT to 18.0 MMT from drought and freeze damage; their wheat yields are estimated at an 8-year low. Argentina’s exports were reduced .5 MMT to 12.5 MMT. Australia’s production was left unchanged at 28.5 MMT and exports were also unchanged at 19.0 MMT.

After the sharp rally in response to these numbers, only soybeans managed to hold onto the gains while major farmer selling pressed wheat and corn. Both did manage to show some stability by the end of the week as end-users bought the lower prices.

The break in wheat futures pulled U.S. FOB offers to a narrow premium over the EU and Black Sea. This will likely lead to more export sales coming our way and further supporting the wheat complex. World cash markets were up, led by Russia’s increase of $4/MT over last week, putting their FOB offers in the $255-7/MT range.

Russia’s Ag Ministry finally released their export quota this week, but it wasn’t a market mover. Instead of starting Jan 1, the quota begins Feb 15 and runs through the end of their marketing year on June 30. The limit on wheat sales will be 15 MMT, not nearly the tight number expected by the market, and wheat futures lost yet more of the upward momentum in response.

Export sales last week were 300 TMT, much smaller than we’re used to seeing lately but it was within the range of estimates. No major surprise purchases this week. Marketing year-to-date sales are running 627 million bushels, up 69 million (12%) over last year. 

Technically, this recent correction appears to be stabilizing and there is still a good chance of another rally to test the recent highs in the near term. It looks like the old Thanksgiving rally might be in play this year. If so, there is a good chance that’s probably all wheat will get in the near term as corn and soybeans are the current leaders.

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