Chicago Leads Higher – October 18, 2019

Chicago Leads Higher

Wheat markets were mixed for the week, with Chicago pushing strongly higher on a 24-cent gain, but Minneapolis ended 3 cents lower and Kansas City finished 14 cents higher.

 

There was plenty of news to push price action. The potential US/China ‘phase one’ trade agreement would have China buying $40-50 billion of US ag products even if no one can explain how or why they would buy that much. Aside from the obvious need for soybeans and pork, they also hinted they were looking at wheat – particularly hard red winter and white wheat.

 

That was good news for wheat, but Kansas City wasn’t the leader higher, so it doesn’t explain hard red’s continued slide against Chicago into new all-time lows. What might explain the surge of Chicago against Kansas City would be large funds covering short positions as world prices moved higher again this week.

 

Egypt bought 405 TMT at prices $9/MT higher than last week. In fact, over the last month, prices paid by Egypt have risen $20/MT, a nice 55-cent/bushel rally. Russia has been the biggest seller to Egypt and their FOB offers essentially set world price.

 

The seasonal tendency for wheat to rally into the fall is working well this year. Winter wheats put in new highs for their moves this week, while Minneapolis just tested its September high. Spring wheat then ran into notable selling which picked up steam headed into Friday’s close. The winter wheats seemed able to hold their gains into Friday’s close and look poised to at least start next week on firm footing.

 

That said, the normal seasonal rally tends to stall in late October. Given the general lack of a bull story, wheat’s upside potential looks limited. The Southern Hemisphere’s harvest will be in full swing within a month and both Argentina and Australia will be looking for markets.

 

Argentina is expected to produce about 20.5 MMT, 1 MMT higher than last year (which they are still selling). Australia is expected to see another disappointing harvest of 18.0 MMT, .7 MMT lower than last year’s drought affected crop.

 

Export sales last week were 395 TMT, down a bit from the previous week. It was pretty much the usual buyers, no surprise purchases or extraordinary volumes. Year-to-date sales are running 53% of the forecasted estimate, compared to the average for this time of year of 59%.

 

I look for the winter wheats to find just a bit more support early next week but then likely stall and begin heading lower into November/December. I don’t expect to see the early September lows go out, but that still leaves a lot of room for wheat to move lower. With Kansas City almost $1/bu discount to Chicago (an all-time low), one would think that spread is about as wide as it can go.

 

Louise Gartner,

Owner, Spectrum Commodities

 

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