Wheat investors watch corn and soybean markets go higher

There's still room for upside movement for grains, oilseeds, analyst says.

Last week, wheat ended strongly higher following the announcement from Russia of a $30/MT export tax set to start in mid-February.

This week, there wasn’t any upside follow-through as Monday’s prices gave back much of the previous Friday’s gains; prices then traded in a quiet, sideways pattern.

Corn and soybeans are getting some strong price action, but wheat appears to be the short leg of spread action by large traders. For the week, Kansas City wheat was down 12¢, Minneapolis down 2¢ and Chicago down 6. Corn was up 14 while soybeans were up 60¢ to a 6-year high.

Wheat struggled to hold the remaining rally together as world prices were largely unchanged on the week. Russian FOB offers have disappeared, but Australian supply is keeping prices in check. Most other major exporters have tighter supplies than Australia, and their domestic prices are increasing. 

We saw the higher prices materialize with Egypt’s purchase this week of 235,000 metric tons (mt.)- 120,000 mt. from Romania and 115,000 mt. from Ukraine. The average price paid was $283 delivered, up almost $8.00 prer metric ton from their last purchase on Dec 1 (all Russian). Even though this latest purchase was for early Feb delivery, before the Russian export tax would take hold, we still saw no competitive Russian offers. 

There were rumors this week that the Russian government was slow walking export certifications for current shipments, creating delays at the ports. Exporters aren’t willing to risk further delays in February that would push them into the tax time window. In effect, the action accomplishes what Russian domestic end users wanted in the first place – to shut off exports now, keeping domestic supplies safe and prices from rising yet higher.

U.S. exports last week were a solid 561,000 mt. Hard red winter, spring and white wheat made up the bulk of the sales with China taking 65,000 mt. of the springs. Market year-to-date all wheat sales at 19.8 mmt are up 10% over last year and are on right on pace to meet USDA projections.

The steadily declining U.S. dollar is obviously helping in that department, reaching a fresh 2 1/2-year low this week. 

While wheat didn’t participate in this week’s rally of corn and soybeans, it is still supported by those two markets. As a substitute for corn in the feed grain market, rapidly rising world feed grain prices and massive demand from China are underpinning wheat values. The drought conditions in Argentina and Brazil that have been present for weeks, and lately a strike by the port workers in Argentina has shut off corn and soy meal exports from that country. 

As a result, we’re seeing world demand shift back to the U.S. for corn and soy/oilseed products as a replacement for lost South American supplies. However, with lower production here for both corn and soybeans along with huge early demand, our stocks are quickly getting very tight. It appears we are seeing the beginning of demand rationing this week. 

Demand rationing alone could drive both corn and soybean prices higher still, but throw in continued weather problems in Argentina and Brazil from the strong La Nina and the world could quickly become tight in those supplies as well. It would seem that there is still room for more upside price action across the grain/oilseed space.

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