Market Focus Shifts to the South

August 3, 2020

Market Focus Shifts to the South

Wheat markets last week were generally lower as they chopped back and forth. We saw Chicago lose 8 cents, Kansas City lost 7 cents and Minneapolis was down just 1. The spreads between the higher protein markets and Chicago gained slightly as a result.

Export sales have been stellar the past couple of weeks, with last week adding 677 TMT. Solid world demand and the declining US dollar have helped US sales. But we can expect competition will remain stiff through the marketing year.

With Northern Hemisphere harvest moving forward, we have a clearer idea of production. The market will focus on Russia since they set world price, and we see yields improving and production estimates rising. Private estimates are now hovering around 80 MMT, compared to SovEcon just last week at 79.3 MMT and USDA last month at 76.5 MMT.

Even with better production, Russian FOB offers were steady/higher over the weekend, in a range from $212-214/MT. Russian exporters have adequate supplies but they have to source further away than normal, increasing the cost of exports and thus supporting FOB offers and world prices.

We’ve already seen evidence of that with Egyptian purchases over the last few weeks. Despite better financing arrangements that would decrease risk of doing business with Egypt, they are still paying increasingly higher prices. Last week, they purchased 470 TMT of wheat, 350 TMT from Russia and 120 TMT from Ukraine. They paid $217 FOB, $6 higher than the previous week.

We still have spring wheat harvest to complete, but market focus is shifting to the Southern Hemisphere. At this point, we don’t see any major problems developing in either Argentina or Australia. In fact, with recent widespread rains in Australia, they could be setting up for a bin buster. After the last three years of short crops, they should have plenty of bin space.

I would expect wheat to trade in a range for the next several months, supported by the stable/higher world prices but kept in check by large Russian supplies, promising production from the Southern Hemisphere and huge US row crop production.

Louise Gartner,

Spectrum Commodities

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