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Wheat Testing Harvest Lows, Analyst Says

Wheat rally squelched.

It’s been an active couple of weeks across the wheat complex. As has been the case since early August, minor rally attempts get slammed. Now we’re testing the harvest lows, remarkable considering the bullish fundamentals that have developed over the summer.

But aggressive selling by Russian exporters has pressured world cash prices, pulling futures lower as well. This week, USDA’s supply/demand report cast a bearish slant to world stats as they increased world production by 3.4 MMT. They left U.S. data unchanged. There has been little consistent bullish news over the last few weeks to support a sustained rally.

That said, the constant trickle of news coming out of Russia eventually will support the wheat space. A couple of weeks ago, the Russian ag minister met with exporters to discuss possible limits on wheat and grain exports. That news supported a rally but was quickly squelched by their denial that any limits were coming. Last week was a similar story as we expected to hear official news of restrictions beyond 25 MMT of wheat exports, but the market got nothing.

This week, finally, they made it official: a limit on wheat exports of 25 MMT, and all grain of 30 MMT. Also, this week there were rumors that the Russian government was monitoring wheat exports more closely to get a handle on how much is leaving the country. They claim they are only inspecting for quality following complaints from buyers that wheat being delivered wasn’t meeting contract specs. This suggests that exporters are already getting into the low-quality wheat that was damaged from rains during harvest.

With the torrid pace of exports so far this marketing year (last count 11.4 MMT, double last year’s pace), they could quickly run into the limit. They did sell another 235 TMT to Egypt this week at $5/MT higher than last week, which will ultimately support world prices.

A couple more things on Russia... There were reports this week that some of their spring wheat crop could be in trouble. A late planting season pushed maturity late, but freezes have ended the growing season in regions of Siberia before spring wheat was mature. Reportedly, 5 to 8 MMT of high-quality spring wheat are at risk of not reaching maturity.

And lastly, winter grain planting season is in full swing across the Northern Hemisphere. Drought conditions that plagued Europe and the Black Sea during the growing season are largely still intact. There are stories of Russian farmers seeding into dust; not a good way to start the next season.

As the Southern Hemisphere’s season progresses, we see that Australia’s conditions have not improved much and are headed for another short crop. Argentina will likely see a good crop, but political and economic issues are encouraging farmers to slow sales.

Clearly, the fundamental picture of the wheat market has a solid bullish foundation. But weak cash caused by aggressive Russian exporting before tariffs are imposed has cast a short-term negative tone.

I look for wheat to follow the normal seasonal pattern and rally into the fall. As we move into winter and spring, most of the export business will likely flow to North America, where U.S. farmers are well positioned with good-quality wheat. The market has done little to buy back acres this fall and is quickly running out of time. Much of that burden may fall on spring wheat.


Louise Gartner
Owner, Spectrum Commodities

For daily commentary on wheat and cattle and closing market reports, listen to my podcast at:

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