Wheat Can’t Hold Gains

November 6, 2020

Wheat Can’t Hold Gains

It was a disappointing performance for wheat this week. The first few days saw choppy price action, but then we had a surge of buying and sharply higher prices early Thursday, only to lose it all and then some by Friday’s close. For the week, Kansas City was up 13-cents, Minneapolis up 5 and Chicago up 3. Corn added 8 this week, and soybeans surged 47-cents on increasing dryness/heat in Brazil and Argentina.

World wheat prices slipped this week, with Russian FOB offers down $2/MT over the weekend, and lower prices paid in an Egyptian tender. Egypt bought 300 TMT Russian wheat at $262 CIF, down $2 from their most recent tender a couple weeks ago.

As we move into late fall/winter, it normally becomes more difficult for wheat to rally due to the Southern Hemisphere harvest supplies filling export pipelines. Australia is cutting their third largest crop on record, getting a break from Mother Nature after 3 drought years in a row. We can expect a flood of soft wheat to compete head-to-head with US and Russian supplies into key southeast Asian countries.

Argentina didn’t have the stellar production that looked promising at the start but will still cut a decent crop. Most of the exportable surplus will go to Brazil, but we can expect 2-3 MMT of hard red winter wheat to move into world markets throughout the next two months.

This year, we do have some supporting factors that have managed to prop up wheat for a contra-seasonal move this fall. The ongoing dryness in southern Russia has been a major issue with moisture levels much below normal. Still, reports suggest that farmers are planting record acreage even as they dust it in. In addition, winter is coming; forecasts call for cold temps to move into key wheat growing regions, effectively shutting down the planting season. Russia will need good spring weather, or their exportable supplies become severely limited next year.

Here in the US, the central plains have received limited relief from the dryness. Temps have been warm, and farmers are wrapping up plantings, but establishment will likely be almost as shaky as Russia. The stage is being set for major bullish potential if both countries run into problems in the spring.

But that’s the problem. The market can only take these fundamentals so far in the fall. Good spring weather can still create a great crop, so we just must wait and see.

In the meantime, the increasing dry/heat situation in southern Brazil/northern Argentina is creating some serious concerns for soybean and corn production there. They need moisture now, and the two-week forecast isn’t offering much. If soybean prices take a sharp move up in a weather market, corn is sure to follow and wheat will follow the corn.

So, while the next few weeks are critical for beans and corn, it is also important for wheat. If wheat gets a push up, it should create a good hedge opportunity. I would also expect Chicago to perform better than the other two wheat markets as it follows feed grains higher, widening out the spreads and creating opportunities there as well. We could be on the cusp of a weather market, so we want to be prepared for the potential that will develop as prices turn chaotic.

Louise Gartner,

Spectrum Commodities

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