Wheat Soars on Late-Week Buying

September 18, 2020

Wheat Soars on Late-Week Buying

Wheat futures soared to 6-month highs on a surge in buying Thursday and Friday as traders began to seriously digest production losses from ongoing dryness in Argentina and the threat of losses in Black Sea new crop. Dryness in Ukraine and southern Russia has farmers delaying plantings.

The week started with some weakness across the complex, particularly after Egypt bought some wheat from Poland – albeit just one cargo of 60 TMT. They also bought 235 TMT from Russia. But the trade expected that Russia would lower FOB offers to keep competitors away, but that didn’t happen.

Russia’s domestic prices have been rising after their harvest pressure waned, forcing higher costs onto exporters. With world wheat prices having been consistently above Russian prices, it allowed the Russian exporter to raise offers and still stay below the competition.

Russian FOB offers rose about $8/MT to $235/MT this week. in the last 6 weeks, their offers have rallied an impressive $40/MT, a $1.10/bu equivalent. Recent weeks of dryness have slowed winter wheat plantings and Russian farmers are reportedly holding their stored wheat from the market until they see some rain.

Weather forecasts suggests more dryness for the next two weeks, but after that the reliability drops way off. Russian farmers have until about mid-October to plant, so there is still time. But obviously a late planting raises the risk of poor establishment before winter.

And then there is Argentina where dryness has been an issue since wheat broke dormancy. The Argentine grain exchange lowered production and export expectations, both below USDA’s estimates. They project production at 18.0 MMT, down 1.5 MMT from last year (USDA projected 19.0 MMT last week).  They expect exports to be down .5 MMT to 11.8 MMT; ending stocks are forecast at 1.8 MMT, down 800 TMT from last year and about 50% of the average.

Here at home, much needed rains have fallen across most of the central and southern plains, giving a boost to planting prospects and establishment.  

Seasonally, wheat does tend to rally into late September/early October, but not like this. It is usually a slow grind to the upside before buyers wait for the Southern Hemisphere supply to fill global pipelines starting in November. While Argentina’s crop may be in decline, Australia’s is getting bigger as they prepare to cut their third largest crop on record.

For that reason alone, I think wheat will struggle beyond the early October window. In addition, corn and soybeans will be in full harvest mode with near record crops expected for both, and that is likely to pressure their prices. China buying of corn and soybean has pushed both of those markets sharply higher but that buying is expected to be complete by early October. Much of this sudden spike in wheat prices is from large fund buying as they dive into the commodities space with heavy focus on grains and oilseeds because of China’s buying spree.

The seasonal tendency is holding together very well this fall, and I expect it to stall by early October.

Louise Gartner,

Spectrum Commodities

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