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USDA Shocks Markets, Analyst Says
Wheat markets worked their way higher all week, led by Chicago as tight milling stocks and a poor-quality harvest keeps the cash markets moving higher.
Kansas City struggled to keep up as harvest rolls into Kansas.
Corn and soybeans paced sideways, waiting for the important plantings and stocks reports on Friday that were expected to provide some fireworks.
The reports didn’t disappoint. USDA pegged corn plantings at 91.7 million acres – a complete shock to the market. It is confusing how the USDA can lower corn plantings by 3 million acres earlier this month in the supply/demand report, and then give back 2 million in this report. The markets were expecting another 3-million-acre reduction!
Naturally, corn plummeted and was limit down for a few minutes before crawling out of the hole to settle just a few cents off the lows. But it was a huge outside day lower for corn, which took us down to the early June lows.
As for wheat, the plantings and stocks were pretty much in line with expectations with all plantings at 45.6 million and stocks at 1.07 billion bushels. But wheat followed corn lower, and also had a sweeping outside day lower.
Wheat has found some recent support from heat in Europe and drying conditions in the Black Sea. In late June, that will shave some yield, but it’s not a crop killer. Harvest has already begun in southern Russia with yields reportedly better than expected.
Chicago wheat has had major support from the slow moving train wreck that is this year’s crop. Basis for soft red has steadily risen as cash holders hang onto stocks, expecting they’ll need to blend it into this year’s crop. The Chicago/Kansas City spread has soared to record highs. At some point, it will hit the wall as soft red exports will plummet. Yet, it’s unlikely that hard red winter can regain premium to soft red winter until we see a notable increase in soft red supplies. That could come on more planted acres this fall, or we’d have to wait longer term to see what production will be next summer.
Hard red winter wheat harvest has moved into Kansas, with record yields in many locations. Quality has been an issue throughout the Plains, but we did see a bump in protein in northern Oklahoma. Much of the Plains’ wheat will head to the feedlots. At least it has a home.
Export sales were better than the recent average at 612 TMT. Considering our high prices, that is definitely a win.
The chart formation looks like a significant high has been made in Chicago. The other two markets established their highs in early June. Harvest progress will keep the pressure on Kansas City, and improving weather in the north is shoring up a big spring wheat crop. Corn looks like it has hit the wall, and it will likely take pollination problems to reestablish the upward trend. Pollination will occur much later than normal, raising the risk of heat issues.
I look for wheat to come down and test the lows established in mid-May by late July, especially if corn continues to move lower. Northern Hemisphere harvest will also lend pressure to wheat complex through July.
Owner, Spectrum Commodities
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