Early Rally Fizzles

November 15, 2019

Early Rally Fizzles

Wheat saw some encouraging price action early this week, only to give it all back and more by Friday’s close. Kansas City was down 7 with an outside week lower; Chicago was down 4 and Minneapolis down 15.

There was little fundamental reason for the strong rally on Tuesday and the lack of follow-through on Wednesday brought out the sellers. It has the look of a large fund doing some aggressive short covering before year-end, likely before the slow holiday trade begins.

World prices were weaker last week and thought to be declining again this week. However, Egypt purchased 465 TMT this week, their largest of the marketing year, at prices steady with last week. Ukraine sold 120 TMT of the total with Russia selling the remaining 345 TMT at an average price of $232/MT CIF. Shipping costs declined this week, but the Black Sea sellers managed to prop up cash price and keep final delivery price equal to last week. Thus, technically, world prices were slightly higher this week.

Nonetheless, US futures continued to slip as we look at increasing competition around the world. We see Black Sea and Europe going to head-to-head into key markets, and shortly we’ll see Argentina and Australia move new crop into the world pipeline.

Argentina reports their harvest at 13% complete. Production estimates declined 300 TMT to 18.5 MMT, in line with private estimates. While it is not the record harvest that was forecast early this season, it is still a large crop and we expect that about 7 MMT of the hard red winter wheat will be available to the world market after their sales to Brazil. Argentina currently has the lowest FOB offers in the world, and I would expect new crop offers to be just as aggressive.

We also expect to see about 6-7 MMT enter the market from Australia, mostly soft wheat that will head to Southeast Asian markets.

US export sales last week totaled 238 TMT, a disappointing number that was below the low end of estimates. It’s a familiar story lately and will likely lead USDA to reduce the export projections in coming supply/demand reports.

Other exporters are doing far better than the US in exports. The EU reports that market-year-to-date sales are up 47% over last year at 11.6 MMT, the largest since 2014. We also see the pace of sales for Ukraine and Russia ahead of last year.

Seasonally, wheat tends to rally into the late October time frame, and then head lower into year’s end. So far, price action is following the normal seasonal pattern, which would suggest more pressure to come in the near term.

Louise Gartner,

Owner, Spectrum Commodities

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