Wheat Facing Numerous Headwinds

March 16, 2020

Wheat Facing Numerous Headwinds

It’s been a tough few weeks for ag markets, and especially so for the cattle producer. The grains have also felt the pressure from the financial market meltdown, but their weakness has been slower than other markets.

Wheat is nearing long term supports (the lows from last year) for Chicago and Kansas City. Ironically, Minneapolis has pushed into new lows, but it is the one market that looks like demand is coming. Rumors of Chinese demand have helped it stabilize while the other two wheat markets continue to drift lower.

The coronavirus has obviously had a huge negative impact on most markets and grains are not spared. Additionally, however, we also have the energy markets melting down due to the price war between Saudi Arabia and Russia. That is becoming a huge drag on bio-fuels (corn and soybeans) and it’s dragging wheat down along with them.

As wheat tries to fend off the barrage of negative fundamentals from outside markets, it’s not finding much support on its own, either. With the new growing season getting under way, we see very little winterkill and an abundance of moisture in most major growing areas of the Northern Hemisphere.

World prices are pretty much set by Russia, and their FOB offers were down for the seventh week in a row this week to $206-209/MT. Clearly, they expect a big harvest with new crop offers already a discount at $189/MT. Russian farmers seeded 5% more acreage to wheat last fall, had a mild winter and recent rains. The odds are high that they will, indeed, harvest a big crop.

Private estimates already have them reaching the record production we saw just a few years ago. I think it is also important to keep in mind that the Russian farmer has been a slow seller of wheat so far this marketing year, and we could see them dumping wheat on the market in June to move out old crop right before their harvest begins. And, of course, that would be in the middle of our own harvest here in the US.

The bottom line for the grain markets in general is that until the worst of the coronavirus has passed and stock markets stabilize, demand will likely stay subdued. The sharply rising US dollar isn’t helping us compete on the world stage, either. If China does come for US wheat, it will be spring wheat, and we’ve seen how that market can move in a completely different direction than the winter wheat markets.

It is anybody’s guess on whether the Saudi’s or Russians will blink with the crude oil price war. I don’t see either of them caving, so energies are likely to see more pressure. Which means more pressure for corn and soybeans, and by default, more drag on wheat.

As we head into the main part of the growing season, we’ll likely get some weather premium built into the market. I think those should be used to price wheat. I wouldn’t expect huge price rallies as it appears we’ve re-entered a bear market.

Louise Gartner,

Spectrum Commodities

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