Wheat charts diverge

The February supply/demand report didn’t give much direction to wheat.

While all three wheat markets were lower for last week, their charts look quite different. Chicago and Minneapolis put in new lows for the move, while Kansas City was stuck in a narrow range. For the week, Chicago was down 16¢, Minneapolis down 10¢, and Kansas City down just 7¢.

World cash markets, too, look different. European FOB offers were generally steady to firm on the week while Black Sea offers were lower again. Russian FOB offers were down $4/MT this week, following a $5/MT drop the previous week. That $9/MT drop equates to about 25¢ a bushel and explains the weakness in U.S. futures since Russia is considered the leader in setting world wheat prices.

On the other hand, we see European prices generally stable as they’ve enjoyed a surge in export sales over the last six weeks. France is leading in sales with big chunks of business to Egypt, China, and Algeria recently, helping to support domestic basis.

After being shut out of an Egyptian tender two weeks ago by France, Russia stepped up its game with discounted offers this week in another Egyptian tender. They were successful in beating out France, but still had to share the business with Romania. Egypt bought 360 TMT of wheat, half from Russia, half from Romania at $239/MT delivered, $6/MT lower than its last purchase.

There is clearly a great deal of competition in the Europe/Black Sea region, and it’s not going to let up anytime soon. Algeria has recently opened its doors to Russian wheat, which obviously will compete head-to-head with France. France has recently sold wheat to China, an unusual relationship, and Russian wheat is also allowed there.

The market wonders whether China will soon show up for U.S. wheat or opt for other sources. With the waiting period after signing Phase One over, ag markets are hoping to see a surge of business from China. Their battle with the Coronavirus outbreak is slowing down everything, and markets may have to wait longer yet.

Last week saw the February supply/demand report, but we didn’t get much direction it. U.S. export projections were raised 25 million bushels to 1.0 billion, and ending stocks were reduced by 25 million bushels to 940 million, a five-year low but still a big number. World end stocks had just slight adjustments.

Last week’s export sales bumped back up to 687 TMT, a relief after the previous week’s poor number. Marketing year sales to date stand at 21.9 MMT, compared with last year at this time of 18.0 MMT, up 21% and explaining why USDA bumped up expectations again.

As we move into late February, the market will shift its attention to the upcoming new crop. So far this winter, the weather has been generally mild, and moisture good across most of the Northern Hemisphere’s major winter wheat-growing regions. While acres are down in Europe and the U.S., they are up in Russia to a new record. Unless weather in the Black Sea takes a turn for the worse, the market will look for record production and aggressive sales out of Russia this next marketing year.

Technically, it looks like the seasonal high was established in mid-January instead of early February. I think rallies will struggle to hold upward momentum unless weather threatens yields. If China does finally come to the market, it will likely be a short-term bullish bump. With the prospect of a large world crop this year, those rallies will be viewed as selling opportunities.

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