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Wheat Ends The Week Lower

Demand for quality wheat is showing up.

Wheat markets were weaker for the week. After a strong start on Monday, it was downhill from there as traders positioned for Friday’s small grain summary and quarterly stocks reports. Most of the positioning was long liquidation as they expected to see an increase in wheat production on large yields in the northern plains and northwest.

They did get it on Friday, along with stocks a bit higher than expected as well. Corn stocks were notably higher than expected and prices sold off, helping to support wheat initially on spread unwinding. By the end of Friday’s session, however, wheat was lower along with corn and soybeans in response to the reports.

Higher than expected stocks aside, longer term fundamentals remain bullish. World wheat production in the Northern Hemisphere was down significantly this year, especially among the major exporters. As we look to the Southern Hemisphere, we see two very different stories. Australia is on track for their second poor crop in a row, as drought never really recovered from last year. Estimates range from 17 – 20 MMT. Argentina is on track for record production of about 20.0 MMT with very good growing conditions so far. Both will be nearing harvest in the next month.

Winter grain planting is well under way across the Northern Hemisphere. Here in the US, moisture conditions are much improved in the southern and central plains, which not only improves chances for good establishment, but also attracting more acres.

However, in Europe, we see the dry conditions that plagued their summer season stretching into the fall, threatening establishment. The Black Sea also had a dry summer, but Ukraine has had generally enough moisture to get crops germinated and likely well established. Russia has not had that kind of moisture and is still mostly dry through the southern region into the Volga Valley region – major winter wheat country.

Also plaguing Russia is weather in their spring wheat region. A late planting season got the crop off to a slow start and recent freezes have effectively ended the growing season before all the crop was mature. Spring wheat harvest is estimated to be 37% complete, compared to 75% last year at this time. Quality concerns have already been present for their winter wheat, and now spring wheat quality is likely to decline as well.

The Russian government has stepped up inspections of wheat exports, they say to monitor quality. They would also be concerned about quantity of wheat leaving the country as tightening domestic supplies have pushed bread prices sharply higher.

Marketing year-to-date exports out of Russia have been double that of last year when production was record high. Many market observers expect the Russian government will find a way to shut down exports when they reach 25 MMT. Exporters are clearly getting nervous about supply as well with FOB offers up $15/MT in the last three weeks. Those higher values are pulling world prices higher.

US export sales were very strong last week at 657 TMT. Demand for quality is showing up with hard red winter making up 27% of the sales and spring wheat 37%. As we get deeper into fall, I would expect Russia’s exports to decline and demand pushed to North America.


Louise Gartner,
Owner, Spectrum Commodities

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