Wheat market attempts to flip the price script this week
The wheat market is finding solid support from rising feed grain prices.
Here in the U.S., the late-summer Midwest drought shaved significant production from our corn and soybean crops, and with massive world demand underway, will take both crops into a very tight end stocks situation. Ukraine, the world’s third-largest corn exporter, also experienced late-season stress and corn production declines.
Europe also had a drop in corn production this season. As a result, world feed grain prices have soared this fall with wheat pulled higher along with them as wheat is not only a substitute for corn in feed rations but also is a major feed grain around the world.
Unlike today, last week’s market was generally flat for wheat. It was unable to move higher along with stronger corn and soybean markets. Declining weather conditions in South America, just as producers there are trying to finish corn and soybean plantings, are elevating stress to the young crops.
Until now, row crop prices have surged the last two weeks, but wheat has found little spillover buying.
For last week, Kansas City was down 2¢, Minneapolis down 11¢, and Chicago unchanged. Corn was up 13¢ with soybeans up 39¢.
Wheat is also finding support from record-high Russian domestic prices and high FOB offers that were steady this week. Flour and feed grain prices are also record high in the interior of Russia. The Ag Minister last week announced grain export restriction wouldn’t start until mid-February. However, livestock producers and grain millers are protesting the delay to limiting exports, pointing out the record-high prices at home. The Russian Ag Minister this week announced that the Russian government would subsidize domestic milling operations for wheat and rye but said nothing about high feed grain prices. This would suggest they don’t want to slow wheat exports, and was considered a negative fundamental development.
The significant drop in corn production across the Northern Hemisphere forces the market to heavily rely on the Southern Hemisphere to shore up supplies. It is a similar story for soybeans. But early-season weather in the main growing regions of Brazil and Argentina has been poor since planting started about one month ago and has seen little improvement since. The second strongest La Niña on record is bearing down on South America, and so far, is having the typical effect of hot and dry conditions.
Crops are beginning to show stress, and while short-term weather forecasts show some light rains for this weekend, longer range forecasts offer little chance for soaking rains over the next 10 days. The next few weeks are critical for South American production. Any weather-driven rally, which would likely be huge, would certainly pull wheat higher. Most likely, Chicago would lead the other two wheat markets, further widening their spreads.
NOAA, last week, suggested that the southwest U.S. drought would expand into the central Plains by late February. While that is likely not a major issue since the winter wheat crop is dormant, the dry fall created uneven germination and poor establishment across much of the southern Plains. It doesn’t appear that much moisture will fall during the winter to recharge the soil profile, making timely spring rains critical.
Wheat is also running into resistance as the Australian crop makes its way into the world export pipeline. Their third-largest crop on record will compete in the key Southeast Asian markets and work to keep wheat prices in check.
At this point, the grain complex is primarily focused on the weather in South America. That will be the driving force for the next few weeks and could create significant volatility during December. Be on the watch for big moves higher in the grains, which would present an excellent selling opportunity for the wheat complex.