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Wheat Market Looks For Support, Analyst Says

Grain complex has a lot of moving parts.

Wheat markets were mixed for the week, with Chicago up 4 while Kansas City was down 3 and Minneapolis down 7. Early in the week, Kansas City gained against Chicago, and rumors floated that hard red winter wheat would be delivered against the soft red futures contract.

The delivery period starts next Friday, but the soft red market doesn’t want hard red wheat, it needs soft red, and there is very little milling grade out there. Bull spreads in soft red winter worked strong on Friday, taking the carry to just 2½¢ to encourage deliveries of soft red rather than holding in storage. Kansas City was just the opposite with bear spreads working to discourage deliveries.

Chicago wheat’s spread against corn has rallied 50¢ in the last month, as corn collapsed following bearish crop reports. A lot of moving parts to this grain complex and it doesn’t look like it will get any simpler into the fall.

The Pro-Farmer tour estimated national average corn yield at 163.3 bushels per acre vs. USDA’s latest estimate of 169.5 bushels per acre. Soybean yield is estimated at 46.1 bushels per acre vs. USDA at 48.5. With planted acres all but settled and yields coming into focus, the trade now waits to see if the crop makes it to the finish line before frost ends the season.

Cool temps in the near term will stoke fears of an early end to the growing season, but only time will tell. Corn prices have given up the entire weather rally, and it’s hard to envision prices compressing much further. However, the removal of ethanol blend requirements for 31 refineries this week created some demand destruction and was a clear drag on futures prices, not to mention a weak crude oil market itself. Escalating trade wars with China, Europe, and pretty much everybody else isn’t helping.

The weak corn prices have removed support for wheat, which was closely tied to corn early in the summer. With feed grain supplies adequate, wheat will move away from corn’s influence. World wheat prices have moved slightly lower this week as well, with Russian FOB offers now at about $191/MT, down 2 from last week.

There is a bright spot, however: U.S. export sales continue to be much higher than last year. Last week’s sales at 600 TMT were well above the range of estimates. Year-to-date sales of 383 million bushels are up 69 million over last year, a 22% rise, and on pace to meet USDA projections.

That said, world wheat supplies will be record large with adequate milling stocks as well. Europe’s wheat crop was up 15% over last year; Russian production was steady with last year at 73 MT, and Ukraine is up 14% at 28 MT. Export competition will be intense throughout the marketing year and will keep a lid on U.S. prices as well, unless corn takes a run higher.

I look for wheat to settle into a narrow trading range (unless corn pushes notably higher). Minneapolis could push lower as harvest progresses, but the winter wheats will likely find support as they sit near the spring lows.


Louise Gartner
Owner, Spectrum Commodities

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