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Wheat Market Tries to Form a Double Bottom

Low wheat prices stoke demand.

A bit of a wild ride in wheat this week.

Early week price action started slightly lower and then accelerated down by midweek, taking out the harvest lows. But by Friday, wheat regained most of the week’s losses on an Egyptian tender that saw the U.S. offer two cargoes with the lowest FOB prices.

But the low U.S. offers were offset by cheaper shipping costs out of the Black Sea. Still, we managed to secure part of the sale. The Egyptian tender resulted in a purchase of 470 TMT - 350 TMT Russian, 60 TMT Ukrainian, and 60 TMT U.S.

The U.S. participation in the Egyptian sale is a big deal. That is a very difficult market, and it shows that we are now fully competitive in the current world wheat trade. It can be a delicate balance, with a strong dollar and wheat still flowing out of Russia, but we’re getting there.

The Russian government met with exporters this week, basically restating that there is plenty of wheat available for export. In fact, they raised the volume to 33-34 MMT, far above recent trade estimates of around 25-30 MMT. The market didn’t seem fazed by that, particularly considering we’re basically at equal prices in the export market.

It is interesting that they would increase export volume estimates when domestic wheat and bread prices have steadily risen over the last several weeks, with numerous reports of potential government intervention to slow the movement of wheat out of the country. Apparently, they’re not too worried.

Last week’s export sales were steady at 448 TMT, in line to meet USDA’s projections. It is worth noting that quality wheat took the bulk of sales with hard red winter at 164 TMT (37% of the total) and spring wheat 184 TMT (41% of the total).

The Australian government reported this week that they expect wheat production to be down more than half of normal due to drought. New South Wales is the hardest hit, but most of the country is in tough shape. They project wheat production at 16.6 MMT, below most analysts’ outlooks at this point.

Needless to say, their exports will be down sharply this year, after a poor season last year as well. Much of their business goes to southeast Asian countries, and it was reported this week that some of those countries are looking to establish longer term contract for wheat delivery well into next year, replacing a system of hand-to-mouth purchases of the last few years. With world wheat production falling for the first time in years, they are becoming more proactive in securing supplies.

Argentina’s wheat harvest is getting rolling, reported about 3% along. The grain exchange projects wheat production at 19.4 MMT, down slightly from last month’s estimates due to dryness and frost. Still, it looks to be a big crop. It is expected that most of their excess supplies will head to Brazil, who usually buys most of their exports, but whose own crop is experiencing some quality issues, making them more likely to import more than normal this year.

Technically, with the market jabbing harvest lows, the majority of stops should be cleaned up. Friday’s sharp rally off the major low sets up the charts for a large double-bottom formation. The fundamentals don’t really support prices being below harvest-time lows and could explain the surge in buying at those levels. Wheat prices are low enough to stoke demand, which certainly worked for Egypt. I look for these lows to hold, and prices to work their way higher through the winter and likely strongly higher into the spring.


Louise Gartner
Owner, Spectrum Commodities

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