Wheat Quietly Improves – December 15, 2017

December 15, 2017


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Wheat Quietly Improves.

After early weakness across the wheat complex this week, partially due to a slightly bearish supply/demand report, prices bounced off contract lows as notable export business offered a glimmer of hope that perhaps we’re competitive again.


A sale of 120 TMT of US hard red winter to Algeria was a nice boost to prices. Egypt also bought another 295 TMT of Russian/Romanian wheat at prices about $1/MT higher than two weeks ago (mostly a transportation bump).


The Export sales report showed a strong performance last week as well with 599 TMT sold, significantly higher than the top end of trade estimates. Hard red winter wheat made up the bulk of the sales with 256 TMT sold (43%), and spring wheat was also strong at 208 TMT (35%).


Tuesday’s supply/demand report had USDA lowering US projected wheat exports by 25 million bushels to 975 million, largely due to expected increased competition from Canadian spring wheat. World wheat production was increased 3.2 MMT with carry-out bumped .9 MMT to 268 MMT. Along with Canada’s 3.5 MMT bump in exports, we also saw Russia and Ukraine’s exports raised .5 MMT each.


While USDA left European exports alone, Strategy Grains out of Europe later this week lowered their soft wheat export estimate by 600 TMT to 22.3 MMT, compared to 24.1 MMT last year. For their marketing year-to-date (beginning July 1), they’ve exported 9.0 MMT compared to 12.1 MMT last year. They point to Russia as the culprit for their lower exports, a problem that won’t go away soon.


Russia has dominated world wheat trade for the last two years with bumper crops each year. They’ve made impressive inroads into non-traditional markets, and are about to hit the mother lode as they open business channels into Brazil. It could be a boon for Brazil as well, as they want to export beef to Russia.


Look for some deals to get done down the road as the trade is estimating that Brazil may need to import as much as 8 MMT, about 1 MMT more than average, which could make them the world’s largest wheat importer this year. But they won’t be able to source even their usual amount from Argentina. Both countries had higher than normal low-quality wheat harvests, forcing Brazil to come to the open market in the first place. No surprise to see Russia maneuvering to the head of the line.


That said, Brazil is very particular about the quality they import, and if Russia can’t make the grade we will see Brazil turn to North America.


Harvest in the Southern Hemisphere is plugging along. Argentina looks to be about 58% complete, up 14 points on the week. Production estimates from USDA were unchanged at 17.5 MMT, down 1 MMT from last year. Australia’s harvest has been hammered with rain and wind, but weather has turned hot and dry, and harvest is expected to speed along in the next two weeks. USDA left production unchanged at 21.5 MMT, a surprise since Australia had lowered it to 20.5 MMT last week.


Informa updated their 2017 yield and 2018 planting estimates on Friday. They pegged 2017 corn yields at 176.6 bu/acre (USDA is at 175.4); and soybean yields at 49.7 bu/acre (USDA is at 49.5). They pegged winter wheat plantings at 31.09 million acres, down 800,000 from last month’s estimate; corn plantings for 2018 are estimated at 89.68 million acres, down 1.8 million from last month; and 2018 soybean plantings are pegged at 91.39 million, up 1.8 million from last month.


For now, we are in full holiday trade mode, so expect small trading ranges and low volume until after the New Year. I look for US wheat exports to improve as the cold winter weather will eventually freeze over most of Russia’s port capacity (not all). Seasonally, wheat prices tend to rally into early Feb, so I’ll target that time frame for a seasonal high. For now, we just slog through winter, aware that dryness is expanding and there is little snow cover in the US southern plains.


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