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Wheat market stands on its own, analyst says

Worldwide harvest pressure is price supportive.

It was a strong week for wheat, led by Chicago as soft red soared above the quality markets of Kansas City and Minneapolis. Chicago was up 42¢, KW up 18¢, and Minneapolis up 16¢. KW and Minn pulled lower on Friday as Chicago continued higher. Chicago wheat also managed to continue higher despite weakness in the row crops. Corn was down 6¢, soybeans down 5¢.

The main driver for wheat’s rally is the disappointing harvest results coming from both Europe and Russia. We expected to see Europe’s production move lower, but France is estimating production lower than private estimates. 

Russia’s production estimates have seen a wide range all season, with USDA consistently around 77 million metric tons (mmt.). Private Russian estimates have hovered around 83 million metric tons (mmt). With harvest just beginning in Russia and yields coming in lower than expected in the southern region, it is looking like USDA might be more accurate.

The July supply/demand report issued Friday saw USDA lower Russia’s production estimate by .5 mmt. to 76.5 mmt. They also lowered the EU by 1.5 mmt. to 139.5 mmt.; U.S. production declined by 1.5 mmt. to 49.6 mmt.; and world production dropped 4 mmt. to 769 mmt., still up 5 mmt. from last year.

U.S. numbers showed a drop from last month in production of all wheat of 53 million bushels to 1.824 billion bushels. It is down from last year by 100 million bushels. Hard red winter wheat at 710 million was down 33 million from last month and 123 million from last year. Soft red production at 280 million was down 17 million from last month, but up 41 million over last year. Spring wheat was pegged at 550 million, down 12 million from last year. Durum, at 55 million, is up 1 million over last year.

Wheat ending stocks for the previous marketing year were pegged at 1.044 billion bushels, up 61 million from June’s estimate. New crop end stocks are estimated at 942 million bushels, up 17 million from June, and down 102 million from last year.

In other news for the week, Egypt bought 240 TMT Russian wheat at $205/MT FOB. Prices were about steady from their most recent purchase two weeks prior. Over the weekend, we see Russian FOB offers moving notably higher at $205 to 208/MT, compared with $201/MT the week prior.

If Russian prices are moving higher, so will world prices. Disappointing yields in Russia and Europe will offer at least some near-term support even with harvest progressing across the Northern Hemisphere. I would expect world wheat prices to have seen their lows by the end of July, if they have not already.

Weather will dominate row crop price action for at least the next four weeks, and that price action will spill over to affect wheat. But, clearly, wheat is ready to stand on its own and the U.S. should have confirmed seasonal lows with last week’s price action. Any bullish input from corn would add more support to wheat.

I would expect wheat prices to move steady/higher in the near term as harvest pressure worldwide will likely be generally negative. But I then look for the normal fall rally into Sep/Oct as we shift attention to the Southern Hemisphere.

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