New Lows as Supplies Grow

August 7, 2020

New Lows as Supplies Grow

Persistent selling throughout the week pushed Kansas City and Minneapolis into new contract lows almost every day this week. Chicago is quickly approaching its contract lows.

Improving yields in Russia as their harvest progresses is adding another bearish element to the wheat complex. We are already seeing aggressive exports out of the Black Sea region, and I think that will continue well into the fall.

The Russian government is set to establish export quotas in October, and exporters are eager to move as much wheat as possible before those quotas are announced. With a short crop in the southern region, exporters have had to reach further inland to originate adequate supplies, increasing export costs.

That has supported FOB offers and thus world prices but done little to support futures prices. The realization of increasing Northern Hemisphere production along with the anticipation of large Southern Hemisphere production are creating an increasingly bearish attitude in the wheat space.

Recent rains across key Australian wheat regions will be huge in getting their crop off to a stellar start. Argentina doesn’t look quite as good but is still on track for a big crop.

Despite the increasing production and competition, the US sold 610 TMT for export last week. China bought 30 TMT of spring wheat and 55 TMT of soft red winter. It is unusual for them to buy lower quality wheat, but they have done that twice now in the last three weeks.

They have also bought a huge amount of US corn and soybeans in the last few weeks. Some of it could be to put on a good front as the first ‘checkpoint’ of Phase 1 is quickly approaching. Some of it could also be the widespread flooding they’ve experienced recently. While most of the damage is to rice and cotton, some feed grains are also being affected.

Spring wheat harvest is getting into full swing, and private estimates are ratcheting up production estimates here in the US and Canada, adding yet more negative influence into the market. Since the market is already moving lower into August, most likely it will continue until spring wheat harvest is almost done.

Typically, our best chance for a rally is in the early fall, with highs commonly coming in late September/early October. After that, the Southern Hemisphere’s harvest usually keeps a lid on prices through the winter.

This fall will be tough to rally, as the Black Sea has plenty of wheat and exports will likely be front loaded. It just depends on Southern Hemisphere weather over the next couple months. The world has plenty of wheat, and supplies appear to be getting larger. Rallies will likely be short-lived.

I do expect that the spreads between the quality markets and Chicago will improve once the northern plains’ harvest is over. KC is already making a move against Chicago. Unless world prices move higher, I look for Chicago to be the weaker link in the wheat market.

Louise Gartner,

Spectrum Commodities

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