Big Wheat Harvest Looming

Selling could get ugly

Wheat markets were choppy this week, but the overall negative tone was persistent - despite support offered by higher row crops.

Soybeans and corn were both higher this week; beans supported by sharply higher meal markets and corn supported by continued plantings delays in the eastern Midwest and more chatter of acres being switched to beans.

We also saw a stronger dollar cast a negative tone to the commodity space in general with amped up talk of the FED raising rates as early as next month. Export sales for wheat last week were strong, much better than expected at 749 TMT. China has been a presence in the spring wheat market over the last few weeks, likely securing higher quality wheat to blend with their own. Corn and bean export sales were also higher than expected.

But wheat struggled to hold early support, as the looming harvest threatens to bring a mountain of wheat to the market, and farmers are still looking for a home for much of last year’s crop. The hard red winter wheat crop in the plains looks to be a whopper, with reports that fields that were sprayed for stripe rust potentially yielding very well while fields not sprayed will be average at best.

The market is also bracing for a low protein hard red winter wheat crop, and that means competing with feed grains in the major cattle feeding region of the central and southern plains. It also means we could see another round of deliveries of hard red winter against the Chicago futures, and Chicago began to lose steam against Kansas City this week. And it means we’re likely looking at a two-tiered pricing pattern this fall as high quality separates from low quality – in both winter and spring wheat.

Spring wheat lost to both of the winter wheats as widespread rains across the northern plains and Canadian Prairies is getting that crop started very well.
‘Big crops get bigger’ is an old adage, and this year it looks to ring true. World wheat production estimates keep increasing, with some private estimates out of Russia now estimating wheat production at a record 64-65 MMT, up from last year’s 61 MMT and higher than USDA’s latest estimate of 63 MMT.

Exports from Russia are also projected higher at a record 25 – 26 MMT, compared to this year’s 24.5 MMT.
European soft wheat estimates are also rising, this week up another 2 MMT with this year’s exports bumped another 900 TMT as well. There is some dryness being noted across northern Europe that may start to affect yields, but at this point, they are still on track for a very large wheat crop.

The Southern Hemisphere wheat planting season is on as well. Recent rains in Australia have producers optimistic of a good start to their crop. Argentine plantings are projected 25% higher than last year, mostly due to the elimination of the export tax. Their exports over the last quarter were double the same period last year, and next marketing year will surely be higher as well barring production problems.
NOAA released their long range weather forecast update this week.

The outlook for July/August/September precip is generally normal for most of the country with the western Midwest a bit above normal. The same forecast does show much above normal temps in late summer/early fall, but obviously 3 months is a long window and timing is everything.

Corn is less susceptible if the weather turns hot, as most of it got planted early and thus will pollinate early, helping the majority of the crop to avoid the heat during its critical phase. Soybean pollination, on the other hand, could fall right in the middle of the hot period and obviously would be a problem. Hedge funds and managed futures are betting big on a weather market for beans but they are trying to thread a needle with a long term weather forecast. If it doesn’t materialize, the selling could get ugly.

Technically, wheat looks to be starting another leg lower and the seasonals would have it working lower into harvest. Combines are rolling early this year, weather allowing, so look for harvest lows to come early as well. Mid-June to early July would be a target window, but keep in mind that corn and bean price action will be the dominant trade and if Midwest weather continues to look benign into late summer, we could get another round of selling as those crops head into harvest.
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