Strong Start Quickly Fades

April 24, 2020

Strong Start Quickly Fades

Wheat started the week sharply higher as freeze damage appeared to have occurred in a small region of the plains and rains forecast for Russia this week were pushed back into next week. The rally quickly faded with a mediocre close on Monday and choppy/lower trade the rest of the week.

The bullish component of the wheat complex rests with dryness across the Black Sea region that has expanded into eastern Europe. Rains across western/northern Europe this week and a forecast for better rains next week in the Black Sea kept prices in check.

The bearish component is good moisture across the majority of US hard red winter wheat acres. That will help the small region where it looks like frost likely did some damage. Mild temps and adequate moisture could help the wheat recover and achieve near normal yields.

Wheat also has pressure coming from row crops, particularly corn. The plunge in gasoline demand and crude oil prices has weighed heavily on corn, and it is unlikely to ease up any time soon. Chicago wheat’s premium over corn has widened out to a 5 ½ – year high.

Wheat was also disappointed this week as China was rumored to be preparing to buy 20 MMT of corn, 10 MMT of soybeans and 1 MMT of cotton, mostly from the US. No wheat was mentioned, and the snub cast another shadow over the complex.

Chicago wheat’s premium over Kansas City also widened out this week in choppy price moves. If rains materialize in Russia next week, I will look for Chicago to lose against KW. However, if the rains get pushed back again, I look for Chicago to regain is momentum against KW. It really does depend on near term rain events in Russia, and especially the southern region.

Seasonally, wheat tends to peak in early May with weather issues usually figured out by then. It looks as though we will not have serious weather problems here in the US for winter wheat, so the focus becomes Europe and the Black Sea, and the growing season is just getting underway there.

US export sales came in at 400 TMT, in the middle of the range of estimates. World demand has picked up a notch with countries looking to secure adequate grain supplies as the coronavirus wreaks havoc on multiple levels of food pipelines. That, too, doesn’t look to ease up anytime soon.

The world is in disarray. Wheat, for all its importance to the world’s food supply, is usually a quiet market doing its thing. That said, during this trying time, no food product is being taken for granted.

World supplies of milling and feed quality wheat are adequate. However, regional tightness does exist – and the world’s price setter, Russia, is in a tight supply situation. Hence, the export restrictions and hints they could extend into new crop sales. Russia needs those rains next week, or wheat sees another leg up.

Louise Gartner,

Spectrum Commodities

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