Wheat price volatility picks up on weather concerns
Wheat markets had a significant increase in price action this week, shooting higher mid-week on forecasts of dryness returning to Europe, only to give most of the rally back by Friday’s close as we headed into the long holiday weekend.
Weather has resurfaced as the primary driver in price action, particularly after a dry start to the growing season for Europe/Black Sea and production estimate already declining in those regions. The next two weeks look dry in the key wheat producing regions of northern Europe and temps will be increasing.
For the Black Sea, rains have come but not before they, too, started to reduce production estimates. Ukraine was first to drop estimates on lower plantings and the dry spring. Romania followed with an estimate early this week that took production down to almost half of last year’s 10 MMT.
Russian analysts began reducing production estimates as well. SovEcon is the highest at 80 MMT, the Russian Grain Union is at 73 MMT (equal to last year) and IKAR is at 76 MMT. Earlier this month, USDA pegged Russian production at 77 MMT.
As we head into the key yield-setting window of June, the forecasts look promising for Ukraine and Russia, with much needed rains slated for Southern Russia. Perhaps the market expects improving yield prospects in Russia will offset the declining outlook for Europe.
The Kansas Wheat Tour was a virtual one this year. It was still a 3-day event, just without the caravan of cars and people. Final yield estimates were pegged at 44.5 bu/acre, with total wheat production estimated to be 284 million bushels. This compares to USDA’s recent estimate of 47 bu/acre and 305 million bushels. Last year, Kansas yielded an average of 52.0 bu/acre and produced 338 million bushels on the same amount of harvest acres as expected this year, 6.5 million.
Crop conditions continued to decline last week, with all winter wheat at 52% good/excellent, down 1% from the previous week. Kansas gained 2 points to 40%; Montana gained 8 points to 72%. The other major producing states all fell. Colorado was down 7 to 28%, Oklahoma down 3 to 53% and Texas was down 5 to 46%. Dryness and carryover damage from the freeze are continuing to pull conditions lower.
Export sales totaled 428 TMT last week, in the middle of the range of estimates. Hard red winter wheat sold 133 TMT, of which 105 TMT was to unknown.
As we head into June, the market will focus on weather in Europe and the Black Sea. With declining production in two of the major exporters, the downward pressure on wheat would seem to be limited. Russia has already halted old crop wheat exports; any hint of further yield issues and they will likely prevent new crop exports, at least initially, as domestic flour and bread prices continue at record highs.