Friday Fallout

June 26, 2020

Friday Fallout

It was mixed price action in the wheat complex this week. Minneapolis gave up a big chunk of it spread rally against Kansas City and Chicago, and all three wheat markets plunged into new lows on Friday.

Harvest pressure has been a steady bearish component for the last few weeks. Recent rains put a pause on the harvest, but most regions in the southern plains are back in the field. Yield reports are about as expected. Test weights are generally particularly good, but protein is low across much of the central and southern plains. We’re about halfway through Kansas, and that normally means the harvest lows should soon be established.

Chicago and Kansas City looked like they were finding a base of support in early week trading. However, China added another bearish element on Friday, saying they felt the US was meddling in Chinese domestic affairs and it threatened the Phase 1 trade deal.

Corn and soybeans also saw a wave of selling on the China news. With the potential for huge production in both crops, losing Chinese business would be a major blow to those markets. That deal has been on thin ice for some time, and this is not helping.

Next week we will get the important plantings report along with the quarterly stocks report. I would expect them to offer some market moving data, but weather is always the primary focus of the market during July.

The weather has been generally good for much of the Midwest. Early and quick planting means a small pollination window for both corn and soybeans. Those windows are now at the end of the longer-range forecasts, but we don’t see major threats at this point.

For wheat to rally in the near term, it would need help from the row crops. While harvest pressure may be waning here in the US, the rest of the Northern Hemisphere will be just starting their harvests as we get into July. Europe is expecting a decent crop; the Black Sea could be looking at a big crop.

Ukraine has had great weather so far this season on slightly lower planted acres. Russia has been hit and miss for the rains, but they are also looking at a potential big crop on a jump in planted acres.

Of course, Russia will set the tone for world price and it is likely to be bearish through late summer. The Russian Ag Minister has suggested that the second half of the marketing year could see export restrictions, so the market is bracing for Russian exporters to be aggressive and front load their sales in the first half, from July – December.

After that, we get the Southern Hemisphere’s crop hitting the world pipeline. The planting season for Argentina and Australia was good, and production prospects are high.

I look for wheat to find its seasonal low in early July, assuming the China deal stays intact. We might get a bounce from those lows, but I don’t look for significant rallies over the next few weeks as Europe and the Black Sea cut their crops. Again, it would take a weather market in corn and soybeans to pull wheat higher in the near term.

Louise Gartner,

Spectrum Commodities

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