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U.S. Wheat Prices Grind Higher
After an early week push lower, wheat prices bounced quickly and reclaimed those early losses plus some as Chicago finally managed to breach the $4.50 level, if only briefly. Minneapolis was the strongest performer as it shed some of the harvest pressure.
Wheat markets are taking note of the ongoing weather problems in Australia that include drought across most of the wheat producing regions as well as a number of freeze events in New South Wales over the last few weeks that appear to have done some damage as well.
Australian production estimates continue to slide, with some projections below 20 MMT, compared to last year’s 35 MMT. It is becoming clear that they will have a much smaller presence in the export market during their usual November/December time frame.
US export sales were a slow 307 TMT last week. Marketing year-to-date sales are running slightly behind last year’s pace, and are currently about 50% of USDA projections, which is about 3 points behind the average.
Much of the slowdown is reflecting the competition from Russia, and that will surely remain the case for the next couple of months. Once cold weather settles into the Black Sea region, shallow water ports will freeze over and significantly slow down Russia’s export capacity.
This sets up some potential upside strength in the wheat complex during the winter months. With Australia mostly absent and Russian supplies down during the heart of winter, we could look for rallies to be well supported, kind of a contra-seasonal type of price action.
Not that I expect a bull market to develop – at least for now. Even with a substantial drop in wheat production here in the US and now Australia, the massive Russian crop offsets much of those losses. So, I look for wheat to move in a trading range pattern for likely the rest of the marketing year.
That said, it is worth noting that dry conditions are developing in eastern Ukraine and into southern Russia, posing a potential problem there for next year’s production. Drought conditions persist in our own northern plains, albeit some recent rains reducing the severity. Low wheat prices here in the US are not encouraging more acres, even after record-low plantings last year.
My point is that world wheat production is unlikely to be higher next year, and unlikely to see another bailout from a major exporter like this year (Russia). World prices have likely established long term lows and will probably move into a sideways pattern through the winter months. There is plenty of room to move within this trading range and we are still near the bottom.
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