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Sell old-crop wheat-Louise Gartner

Wheat prices had another volatile week, starting the week under pressure and finding persistent selling on any notable rally. After all was said and done, by the end of the week wheat prices just extended their slide that was started a couple of weeks ago. Prices were down 46 cents in Kansas City; after reaching a 3-year high, Minneapolis was down 60 cents with a huge outside week lower, but Chicago was down only 14 cents. 

USDA released the June supply/demand report on Thursday. It was expected that the report would be mostly about wheat, but corn stole the show as lower planted acres and a drop in ending stocks that basically take corn to pipeline supplies pushed prices sharply higher. Corn pulled wheat higher initially after the crop report, but the sellers pounced on the rally.

Total wheat production was increased 15 million bushels from last month to 2.058 billion bushels. Total winter wheat production 1.45 billion, well above trade expectations. Hard red winter was surprisingly higher at 776 million; soft red was also higher than expectations at 433 million; soft white was projected at 228 million, up 6% from last year; and implied spring wheat only down 11 million. 

Kansas production was pegged at 261 million, down 28% from last year; Oklahoma was down 38% at 75 million; Texas was down 64% at 47 million and Colorado was down 35% at 69 million bushels.

Old crop ending stocks were lowered 30 million bushels to 809 on higher exports and lower imports, and new crop ending stocks were lowered 15 million to 687. Feed usage was kept unchanged in the US. 

World wheat production was lowered 5 MMT but ending stocks were raised 3 MMT on a higher carry-in from last year. The EU took the biggest hit in production with a 7 MMT drop, as drought gripped the key northern growing region. EU exports are expected to be down 3 MMT from last year’s aggressive pace. 

Interestingly, world wheat feeding was actually lowered 2.5 MMT. That figure will certainly be questioned as feeders around the world are aggressively moving to more wheat as corn prices reach new all-time highs. Indeed, China reported on Friday that feed mills would be using more cheap wheat as a substitute for corn, with their wheat prices trading 9% below corn.

Livestock producers, particularly in the southeast, are switching en masse to wheat as corn basis soars. Front month July Chicago was finally able to gain some traction against the July corn after getting shellacked for several days and trading at a discount to corn for the first time since 1996. It is still well below par with corn, but at least the buyers are stepping up.

The immediate problem with the grain complex isn’t so much what USDA said in their latest report, or even the loss of corn acres to preventative planting. The immediate problems are the incessant rains across the northern plains and the severe flooding that is not only taking out acres, but damaging roads, bridges, railroads, etc. that is virtually shutting down transportation of grains and commerce in general. This is unprecedented and is still ongoing; and the market is simply not sure how to assess the damage. 

If you can’t deliver grain, does that mean a supply squeeze and higher spot prices? Could it mean lower exports down the road if exporters can originate grain to the ports, specifically the PNW? Or does it mean shipping is done more by truck with costs soaring? And we haven’t even considered more weather problems as record heat has already visited the Midwest. 

Who knows, but I would expect the markets to continue in volatile and chaotic price action as it tries to figure it out. That said, it certainly looks like Minneapolis wheat has put in a high, at least short term, right in line with the normal seasonal pattern. The sweeping reversal down is a looming negative chart formation if it gets confirmed with a lower close next week. 

I still think it just makes sense to be selling at least old crop spring wheat in these seasonal windows. This week’s price action is a good example of why to not let bullish fundamentals get in the way of making sales into seasonal tendencies. Everything was lined up for higher prices and then we just ran out of gas. It doesn’t mean prices can’t eventually move higher again on those same bullish fundamentals, but the seasonals carry a lot of power and it’s best not to fight them if price are moving in sync with them. 


This publication is strictly the opinion of its writer and is intended solely for informative purposes. It is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named.  Information is obtained from sources believed to be reliable, but is in no way guaranteed.  Futures and options trading always involve risk of loss. Past performance is not indicative of future results.

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