Wheat Spreads Widen Further

July 27, 2020

Wheat Spreads Widen Further

Wheat markets were slightly higher for the week with Chicago again leading the way with a 4-cent gain; Kansas City was 1-cent higher and Minn up 2 cents. Corn was down 7 and soybeans up 7.

The wheat spreads have seen huge moves over the last few weeks. Chicago has soared against the quality markets, pushing the Kansas City spread back down to test the all-time lows from last winter. Minn has moved discount to Chicago, something we don’t see very often.

Chicago is surging as world supplies are shrinking. We see yields in Europe and the Black Sea be less than expected, and soft red supplies here in the US will remain tight for the marketing year. Flooding in China is affecting feed grain supplies, and after rumors of them buying US soft red wheat a couple of weeks ago, we finally got confirmation in last week’s export sales report. And that was after purchases of hard red winter and spring wheat the previous week.

It is unusual for China to buy lower quality wheat and could speak to their concern about feed grain supplies. Their record purchase in one day of US corn the previous week is likely due to the same concerns. Their purchases of US soybeans continue a strong pace as well.

The International Grains Council lowered world wheat production by 6 MMT last week to 762 MMT. USDA is at 769 MMT. They also lowered world corn production by 7 MMT to 1.164 billion metric tons; USDA is at 1.163 billion metric tons.

Egypt last week purchased 115 TMT of Ukraine wheat, priced $209-211/MT FOB, down $2 from the previous week’s purchase from Russia. I would expect to see Russia lower their offer to Egypt in the next round as they regroup for market share.

That said, over the weekend, it looks like Russian FOB offers bumped up a bit to $211-214/MT, up $2 from the previous week.

With the Northern Hemisphere’s winter wheat harvest nearing completion, the market will begin to focus on the Southern Hemisphere’s production prospects, which so far look good. Argentina has had needed rains and Australia is on a path for a large crop – a well-deserved one at that.

World production and supplies appear to be in a general comfort zone. It is world demand that has suddenly turned uncertain as COVID marches onward and economies suffer. The declining dollar is a huge help for wheat prices but is not enough to completely offset the demand uncertainty. The fundamental crosscurrents are numerous.

I look for wheat to trade in a sideways pattern, with harvest lows already established. I don’t see Chicago being able to push much higher against the quality markets but give spring wheat some time to get through its harvest. By then, we’ll know how the row crops fared in the Midwest and any potential bump they might give soft red winter wheat.

Louise Gartner,

Spectrum Commodities

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