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Wheat's Price 'Parade' Gets Rained On

Drought-like weather persists in southern Russia

Wheat gave back some gains today, as the extended forecasts were a bit wetter for Ukraine and Russia. 

Ukraine maps showing precip in the 6-10 day, and western Ukraine and northern Russia showing precip in the 11-15 day forecast. 

The rally earlier in the week was sparked by dryness over a 10 day period in Russia.  Now that the newest model has added rain into the 6-10 day forecast, part of the BSR should benefit. 

The market has been active in weighing the impact of dry weather in several major exporting zones worldwide against U.S. harvest progress and a backdrop of large global supplies.

Investors are also looking at the damage that world dryness could have on the world wheat numbers which the USDA is set to review on Tuesday.  The key to furthering a rally in wheat is dependent on shrinking production numbers making a dent in world supply.

Australian exports are expected to decline this year as estimates are lower for their crop.  Whether or not the US can cover these losses are yet to be determined as winter wheat harvest is still underway.  Spring wheat ratings from last week are 70% GTE and various weather reports have high heat and low moisture in the Plains and WCB.

The severe drought in eastern and southern regions could shrink Ukraine's 2018 wheat harvest by 15-30% below original estimates.  The reason?  Ukraine has seen no substantial rain since April and none is forecast in the next 7 days.  The Ukrainian Agricultural Council, a non-governmental farm lobby, said up to half the grain harvest could be lost in eastern, southern, and central regions.

Winter wheat accounts for around 95 percent of Ukraine's total wheat output, while the share of winter barley is around 30-40 percent depending on the season.

It is worth noting that drought-like weather persists in southern Russia.  In the same period last year, precipitation rates were average or better than.  This year, significant precipitation shortfalls are observed now in the south and locally in the center of the country. 

The 11-15 adds totals back into Russia but they are confined to the northern region.

The country produced a record crop of 135.4 million tonnes of spring and winter grains of all types in 2017. It will have large stocks left of that record crop once the new 2018/19 marketing year starts on July 1.  The USDA estimates for the Russian crop is pegged at 72 MMT, which is a far cry off last year’s number of 85 MMT.

And here’s the world numbers using current USDA estimates. The private trade believes the current situation is more in the 748 – 755 mt range.  Shrinking world grain stocks in corn and wheat could very well be a supportive action over the summer.  Talk of wheat hovering in the 500 range all summer is picking up support now that totals in the BSR, Australia, EU and US are working towards the lower end of the range in recent years...RJ Meyer


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