Wheat Finds Some Support
Wheat markets were able to make a stand this week, perked up by disappointing harvest reports in Europe and heavy rains on mature Black Sea fields.
Reports out of Europe say that some German farmers are abandoning wheat fields, underscoring their poor crop this season. This follows France’s downgrade of their wheat crop just two weeks ago. And the UK has been pretty quiet about their crop, but followers of their weather know that it’s been one of the driest in recent memory.
In addition to Europe’s poor production, we’re seeing quality and potential yields declines in Russia, where heavy rains this past week on harvest-ready wheat are not only threatening quality but could soon be robbing yield as well.
The Black Sea has had a difficult growing season as well, with rains largely absent for much of the season. Now those rains are coming - at just the wrong time. Last week, one day after USDA projected Russian production at 67.0 MMT, the Russian Ag Minister projected their wheat production at just over 64 MMT, quickly making USDA’s estimate obsolete. It’s also a far cry from the 85 MMT last year, a drop of 25%.
China also announced this week that their wheat production would be down 2.4% from last year, and 5% from earlier estimates.
In a matter of months, the world wheat situation has turned from a long term bearish mentality to an emerging, and strong, bull market. World wheat supplies are dropping this year, down 6% from last year. Looking at just major exporters, we see stocks even tighter, down 18% from last year.
Quality stocks are an important part of the story. Here in the US, we had a high quality winter wheat crop out of the central/southern plains, just not very much production. End-users were eager to buy all they could as harvest supplies rolled in. It stands to reason that Northern Hemisphere quality supplies are dropping further with the rains on Russian wheat, and poor European production.
Southern Hemisphere production could help, but the current long-term weather outlook calls for an El Nino to develop this fall, and that would suggest more dryness problems for eastern Australia. It would usually mean a good crop for Argentina, who typically produce high quality wheat.
Dryness developing across the US northern plains seemed to finally get the spring wheat market’s attention, as Minneapolis asserted impressive leadership in Friday’s trade, with all the wheat markets enjoying a solid performance for the week.
World production declines could easily mean Chicago would be the leader, but if so, would likely be short-lived. Quality markets will eventually lead the way higher, meaning Minneapolis and then Kansas City. So, if Chicago does have a better rally in the near term, look for the Kansas City/Chicago and Minneapolis/Chicago spreads to take a hit, with them then resurging into the winter and spring.
Owner, Spectrum Commodities
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