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Wheat market stabilizes
Wheat markets found a glimmer of hope this week with prices stabilizing and even managing to close higher a couple of times. Production problems in the Southern Hemisphere are adding an element of support that was not expected this time of year.
Reports continue to surface about freeze damage in southeast Australia, with the affected area being larger than originally anticipated. Much of what was affected will likely not be harvested, with some of it going to hay production. It is likely, too, that quality will be down significantly in the wheat that does get harvested in that area.
Argentina’s woes continue as well. Production estimates have steadily declined over the last several weeks. This week those estimates ratcheted downward again, with the Rosario Grain Exchange estimating 9.1 MMT and the Buenos Aries Grain Exchange 10.35 MMT. The Argentine government’s estimate from last month of 8.5 MMT is looking more like it will be closer to the final number than the market gave it credit for. USDA's latest estimate for Argentina is 11 MMT.
Some support also came from corn, which has shown a bit of strength this week from good exports and high ethanol production. Wheat exports were also impressive last week with sales at 618 TMT, above the range of estimates. Year-to-date, sales are running 73% of USDA’s projections, compared to the average of 66%. The pace of corn sales is also strong with 69% already sold, compared to a 47% average. And of course, soybean sales are continuing their torrid pace with 90% already sold where we normally have only 65% sold.
Egypt bought 120,000 MT of Russian wheat; haven’t seen Russia on the roster in a while. USDA also announced the next day an 110,000-MT private sale to Egypt for January delivery. It looks like we’ll be more competitive during the winter once Black Sea ports freeze over.
The charts are looking like wheat is finding decent support at the summer’s major lows. The upside action has been meager at best, but at least we have seen some buying step up. The bull spreads have perked up as well, suggesting underlying support. Kansas City also managed to firm up against Chicago late in the week.
When it comes to quality markets, Kansas City looks like it will continue to be the leader, and I expect that it will regain its strength over the other two markets as we get deeper into the winter.
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