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Wheat prices into new lows

Wheat pushed into new lows this week on persistent selling as corn offered no support, and traders believe that the wheat/corn spread is still too wide. Good growing conditions across much of the northern Plains should bring the spring wheat crop home unless we get an early frost.

Export sales continue to be very strong but obviously not strong enough to support the market. Marketing year-to-date sales are now about 46% of USDA’s projections, compared to a five-year average of 35%. Brazil has maintained its consistent presence in the market, and talk now is that they may have to be around for another few months after a freeze damaged as much as 500 TMT of their new crop.

In addition, their normal supplier, Argentina, is expected to plant fewer wheat acres. After two years of drought and high export taxes, Argentine farmers are projected to plant only 3.8 million hectares, down from 5.3 million last year. Dry conditions in the key state of Buenos Aires have traders looking at significantly lower production and the likelihood that Argentina will not be able to fulfill all of Brazil’s needs again this year.

India announced this week that it will allow another 2 MMT of wheat for exports. This makes a total of 6.5 MMT available. However, with a floor price of $300/MT, India isn’t anywhere near world prices and exports will likely be nil until the price is lowered or world prices rally to India's level.

USDA will release its August supply/demand report on Monday, and this will likely create ample volatility. They will report on their resurvey of Midwest farmers on soybean plantings; but apparently no adjustments for corn or wheat acres? Soybean-planting estimates are all over the map, with some looking for higher acres than USDA’s June estimate and others looking for less.

Wheat price action is still under the shadow of corn, and corn doesn’t have a bullish friend these days. Despite continued cool weather and dryness taking a toll on western Midwest corn and soybeans, corn prices saw new contract this week with little sign of support showing.

The wheat/corn spread at roughly $2 is indeed wide. With ample feed grain supply on the way with this record corn crop, wheat is losing a key demand base. However, export demand has been stellar, and world-quality supplies are still tight. China will be a major player this year with most now expecting the country will import more than 9 MMT, compared to its normal range of 1-3 MMT over the last several years. It looks like Pakistan will be an importer this year as well. Demand is there, but price action isn’t – yet. The supply/demand report on Monday will be important and will likely set the tone for the next few weeks.

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