Weather Pulls Wheat Higher

May 29, 2020

Weather Pulls Wheat Higher

A quiet start to the week eventually found some buying support as dry weather returned to western Europe, and hot/dry conditions parked over the US central plains.

Even as harvest ramped up in the south, which normally would put pressure on the market, the major hot/dry pattern is likely to cause yield loss across Oklahoma, Kansas, Colorado, Nebraska, and the Dakotas.

Northern Europe’s grain production is struggling, with a dry start in spring followed by a brief wet spell, and now a return to dry conditions. Longer range forecasts suggest rain relief coming in about 10 days, but yields will certainly suffer before then. This week, crop analysts in Europe reduced production estimates another 4 MMT to 121.5 MMT, down 9 MMT from last year. New crop exports were also lowered another 1.5 MMT to 26.5 MMT, also down 9 MMT from last year.

SovEcon estimated Russian next year’s wheat exports at 36.8 MMT, up 3.3 MMT over last year and 1.8 MMT above USDA’s recent estimate.

Ukraine’s Grain Traders Union is estimating Ukraine’s wheat exports next year at 26.7 MMT, down 1.6 MMT from last year.

Early harvest reports from the US southern plains suggest yields equal to slightly better than expected. I would look for yields to drop notably as the harvest moves into the panhandles from the frost, and into the western central plains from the months of dryness and now heat.

Crop conditions continued to decline last week. Nationwide, winter wheat stood at 42% good/excellent, down 2 points from last week. Kansas was steady at 40%; Oklahoma was up 7 at 60%; Texas down 4 at 42%; Colorado was up 4 at 32% and Montana was up 8 at a whopping 80%. Recent dryness likely reduced Montana’s impressive rating, but it is looking like a big crop coming there.

Spring wheat plantings lagged normal at 81% complete, up 21 points on the week but still down 9 points from the average. Montana was 92% complete and 5 points ahead of average while North Dakota was 70% complete but 8 points behind the average. Corn and soybean plantings were both ahead of average with corn 88% complete, up 6 on the average, and soybeans 65% complete, 10 points over average.

Export sales were a strong 706 TMT last week, well above the range of estimates from 200 – 600 TMT. No single buyer stood out, but hard red winter wheat made up most of the sales at 333 TMT.

China/US trade relations are back making headlines, and it is not bullish. Lots of insults for now, but no defined retaliations. That could easily change, and the market is on edge as it hopes cooler heads prevail.

I look for Kansas City to continue to lead wheat higher for the next few days but is unlikely to see a lot of upside simply because we have harvest picking up steam and the hot conditions should move it along quickly. If Europe doesn’t get rain relief soon, wheat could easily take another leg up, but Chicago would likely lead the way in that type of move. I would look to be selling into this rally, expecting that harvest will eventually press prices lower.

Louise Gartner,

Spectrum Commodities

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