Wheat retests recent lows

Wheat markets were lower for the week, with Chicago down 9¢, Kansas City down 7¢, and Minneapolis down 2¢. The drop took wheat down to test the late-February lows. It could have been much worse, considering the volatility in the stock markets and the risk-off attitude of most traders as the coronavirus continued its march across the U.S.

China began issuing tariff-free import quotas this week, good for up to one year. Expectations are that they will come for beef, pork, and chicken first. There was talk that China was pricing pork, but was also interested in spring wheat, sorghum and DDGs.

Grains will have to be price competitive and at this point, they aren’t. World wheat prices are well under U.S. FOB offers. Corn and soybeans look to struggle to be competitive as well with huge South American crops on the way.

Russian FOB offers started the week steady but weakened as the Russian ruble declined. Even with the U.S. dollar taking a big hit this week, other currencies also declined, keeping their export prices still lower than U.S. prices.

Export sales last week were a solid 570 TMT, in the middle of the estimate range. Year-to-date sales are 2% ahead of last year at 23.1 MMT. Sales are running 85% of the projections, compared with the five-year average of 95%. With slowing world trade, it seems that USDA’s latest export increase may have been too optimistic.

Part of the concern over exports are the port congestion issues in many of the Asian countries. The coronavirus has slowed world trade to a crawl, and some ships are having trouble offloading. This pushes back purchases and backs up product in the exporting countries. We see demand destruction occurring with little chance of recouping those losses.

Meanwhile, the new growing season is approaching, and production prospects are very good across most of the Northern Hemisphere. It will take a major weather event in a major producing region to change the trajectory of wheat prices, which is down.

Seasonally, wheat usually gets a rally into early May. My guess is that rallies will be short-lived and offer fleeting opportunities to book sales – unless we run into major production losses somewhere. But we can’t depend on that, so it’s likely we’ll work our way lower into midsummer.

Louise Gartner, Spectrum Commodities

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