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Wheat Market Searches for Low

Global wheat supplies apply price pressure.

A familiar story, new contract lows nearly every day this week. However, Thursday did offer an outside day higher and thus a key reversal up. Friday didn’t give us much reason to get excited by the reversal, as the market was quiet and unchanged.

Nevertheless, with August quickly closing, we should see the seasonal lows established soon. The pressure stemming from the massive Russian wheat crop will likely keep rallies in check, but the upcoming Southern Hemisphere growing season could offer a reason to at least come up for air.

Russia’s wheat crop continues to get larger the more harvest progresses. With grain harvest about 45% complete, private analysts are pegging the wheat crop between 79 and 81 MMT, far higher than last year’s record 72.5 MMT and higher than USDA’s last estimate of 77.5 MMT. Russia’s challenge will be exporting available supplies; there was market chatter this week about them using Baltic ports in addition to their own.

Australia’s wheat crop is already stressed from dry planting, and timely rains will be critical as water demands increase in September. There were freezing temps in southeast Australia this week, which seems to have done at least some light damage, but no assessments have been made. Argentina is looking at slightly smaller plantings than last year as farmers there continue to move away from wheat production.

Brazil also experienced some light frost this week on their wheat crop, which also was thought to have some potential damage, yet there weren’t any actual assessments made.

World prices are clearly being set by the Black Sea sellers (mostly Russia and Ukraine). Europe is trying to compete, but a mediocre crop is keeping internal prices high and knocking them out of export competition.

Here in the U.S., wheat prices out of the Gulf are competitive FOB, but our disadvantage to Russia is transportation, particularly in the North African markets. The southeast Asian markets could be competitive to us depending on Australia’s crop. No doubt Russia will try for those markets as well.

Technically, the seasonal lows should be near, if they weren’t established on Thursday. That said, the massive Russian crop and impending large U.S. corn harvest will be a reminder that there is plenty of wheat and feed grain here in the U.S. – and the world.

I look for wheat prices to settle into a trading range through the fall and winter with the lows basically the same as this week. Upside is likely to be limited, perhaps 50¢ to 75¢ on the upside. Unless there is a serious production problem in the Southern Hemisphere or some other major jolt to the market, it will be difficult to move much beyond that upside target for the next few months.

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