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Wheat harvest lows over?

Wheat markets rallied a bit further from the lows of July 1, giving more credence to the likelihood that seasonal lows are in. Another week of very strong export sales, a bullish supply/demand report and harvest pressure mostly behind us point to the increasing probability that wheat should see stronger prices over the next few months. 

Harvest is close to wrapped up in Kansas. So, hedge pressure in hard red winter should be over. Soft red winter wheat harvest has been significantly delayed due to rains and high humidity, which has also created sprout and vomitoxin damage. This will make it fit only for feed grain and, of course, there is plenty of demand for that.

Export sales, so far this marketing year, have been far above the 5-year pace, with much of that coming from a surge of China buying. So far this marketing year, China has bought 2.85 MMT of US wheat in addition to a flurry of buying from other countries. They have also bought 4.1 MMT of US corn.

The aggressive China buying underscores the rumors about their rapidly declining stocks situation and fits in with reports about the extensive sprout damage their wheat had this harvest season. Indeed, in Thursday’s supply/demand report, USDA increased their estimate of China wheat imports another 5 MMT to 8.5 MMT, the highest since their big purchases in 1995-96.

Last week, USDA also estimated US wheat production to be 2.11 billion bushels, up 34 million from last month’s estimate. Hard red was increased 11 to 793, soft red up 30 to 539 and spring wheat up 4 to 513. Wheat feeding was increased for last marketing year, so ending stocks for 2012/13 were lowered by 28 million to 718 million. The aggressive export pace prompted USDA to raise export estimates by 100 million to 1.075 billion and to lower the ending stocks by 83 million to 576 million bushels.

World wheat numbers also had a positive slant to them. Beginning stocks were down by 5.5 MMT, mostly on higher Chinese feeding. World production was up this year to 2 MMT but end stocks down by 9 MMT to 172 MMT, 7 less than last month’s estimate and a 5-year low.

For as impressive as those numbers are for wheat, prices couldn’t hold the positive reaction to them. Weather continues to drive the market, particularly for corn and soybeans, and wheat is getting caught in the middle. 

Weather models have pointed to less stressful weather for the Midwest for this next week, and price action was weak for both of those row crops as we wrapped up last week. Pollination is just around the corner and will stretch longer than normal, increasing their vulnerability as they watch the heat linger in the plains and threaten to move east.

For the near term, wheat could easily get caught up in the corn/soybean story, but the fundamental picture is increasingly friendly for this market and eventually it will break away to tell its own story.


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