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Wheat Prices Stabilize This Week

Protein concerns remain, but only temporarily.

Coming out of the long holiday weekend, wheat looked like it had some energy to move higher, but the small rally was pretty much gone by Friday, with Chicago down 7 on the week, Kansas City up 3 and Minneapolis managing to hold onto 18-cent gains.

With harvest nearing completion in the Northern Hemisphere, the production estimates are all but complete as well. Short wheat crops in North America will be largely offset by the monster Russian crop, and prices are struggling to retain upward momentum.

It was rumored this week that the Russian government will subsidize transportation costs to export facilities. While there could be issues with WTO rules, in the near term it could be a major problem for world wheat prices.

It is becoming clear that Russia does not want to get behind in exporting a huge crop like they did last year, from which they never could get caught up. This year, with another record crop, they are ramping up exports quickly and in large volumes. We can expect that will be the case throughout the marketing year with increased deep-water port capacity to get them through the winter months.

The protein story is still relevant, but high pro’s out of the north will satiate the market only temporarily. We already see evidence that central plains end-users are searching for high pro’s with premiums creeping higher. They may have to reach up to the northern plains as the hard red winter wheat crop in the southern and central plains this year was mostly a low-pro crop.

Damage from Hurricane Harvey is still being assessed in the southern plains and Delta and now Irma is about to hit the southeast. There is widespread damage to crops across the south with more to come, but we also see damage to infrastructure. Exports out of the Gulf will be slow to get back to normal and likely pressure grain basis in the south for the near term.

Next week we will get the September supply/demand report with fine tuning of spring wheat, corn and soybean yield and production estimates. Row crop yield estimates have held up well over the last month, with early season heat and dryness in the western Midwest largely offset by bigger yields on the perimeter. With record old crop carry-over of both corn and soybeans, stocks will remain high and likely keep price rallies in check.

Corn prices have bounced from the late August low but traded sideways this week. The lack of energy from corn has been a drag on wheat prices as well. With plenty of feed quality wheat here in the US and worldwide, the link to corn will remain strong this marketing year.

Technically, it is quite possible that wheat formed seasonal lows in late August. We would look for a rally into the early October time window, with the magnitude depending on the Southern Hemisphere crop. The very weak dollar should help our exports and offer some price support, but the huge Black Sea crop is more than likely going to keep prices in check, setting us up for what will probably be a trading range through the winter.


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