Wheat Market Outlook and Prices
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July 12/’18 USDA WASDE Report – Wheat
- Last Thursday’s WASDE report showed an overall decrease in global wheat supply.
- Despite a 9 mln bu increase in 2018/19 US wheat ending stocks, global stocks dropped by 5.3 mln mt to 260.9 mln mt (vs 264.5 mln mt expected).
- US 2018/19 wheat production surpassed expectations of 1,857 mln bu at 1,881mln bu, however, but global wheat supply was lowered by 8.43 mln mt from June’s 744.69 mln mt to 736.36 mln mt. This is a 2.86% (21.66 mln mt) decrease from last year.
- Most of this decrease came from the EU where production was revised down by 4.4 mln mt since the June report to 145.0 mln mt. The remainder of the decrease in world production came from Australia, where production was lowered 8.33% (2 mln mt) to 22 mln mt, China, where production was lowered 1 mln mt to 128 mln mt (vs Chinese Govt #s 122.5 mln), and Russia, which lost 1.5 mln mt since June for a total of 67 mln mt.
Global wheat production and trade:
There is a lot of competition in the wheat markets as wheat is produced around the world. Below is a brief synopsis on this week’s market events in the major wheat origins.
- Futures: Last Friday, the wheat markets built on Thursday’s post WASDE-report gains. However, this was not enough to make up losses from the beginning of the week, when poor export performance, good US weather/HRS conditions and the US announcement of another $200 bln of Chinese tariffs caused the market to turn sharply lower.
- Sep’18 contract Chicago winter wheat closed at 497-0, up 12-4 cents in Friday’s trade and down 18-2 cents for the week.
- Sep’18 contract Kansas hard red winter wheat closed up 10-4 cents at 491-6, down 21-2 cents for the week.
- Minneapolis, Sep’18 contract hard red spring wheat closed at 524-2, up 0-4 cents in Friday’s trade, and down 21-4 cents for the week. Dec’18 hard red spring wheat closed at 531-6, up 1-2 cents for the day and down 26-4 cents for the week.
- Funds: Funds did not see anything in the WASDE report that told them to stop selling. Index funds have been the recent leaders as they have reduced their long form 100 mln tonnes.
- Matif: Matif had followed the US to a €7/mt decline at one point, but ended the week down just €1.75/mt.
- The USDA report had US “other spring” wheat 14 mln bu above expectations at 614 mln bu (HRS to account for 584 mln bu of this); this is 47% higher than last year’s 416 mln bu. Cdn. production was left unchanged, ‘17/18 stocks were raised 0.20 mln bu to 5.61 mln bu while ‘18/19 stocks were lowered 0.30 mln bu to 5.01mln bu.
- Spring wheat in SK is developing 10% ahead of avg pace and is rated 77% G/E. Soil moisture maps show N SK benefitted from rain, however, all the SW and Central region show short on soil moisture. This is likely to change as there are reports of very heavy rain falling in parts SW SK.
- US ‘18/19 durum is projected to be up 36% from LY at 74.9 mln bu (2.04 mln mt). This increase is from better durum yields (expected to be up 15 bu from LY at 40.7 bu/acre) as harvested acreage is 14% lower than LY at 1.84 mln acres. Despite a slow start, the US durum crop is progressing ahead of average. As of July 1, G/E ratings in Montana and N Dakota were 54% and 76% respectively.
- In Canada, moisture maps for SK and AB continue to look concerning, although reports of heavy rain in SE AB and SW SK will hopefully show some relief to these regions Korea has lifted their ban on Cdn. wheat, which has been in place since the recent GMO debacle. Japan’s ban has not been lifted, and Canada was again excluded from Japan’s tender last week.
- The EU and FSU are rapidly losing major volumes of export potential, and with dryness an ongoing concern in Australia, there is potentially scope to shift big volumes of export demand into the US in the second half of the season, and it’s tough to be bearish at these levels. Canadian elevator bids for nearby wheat should be ignored for the present.
- US weekly wheat export inspections were very disappointing at 268k mt, for a season total of 64mln bu (down 48% from LY).
- Winter wheat harvest in the US is 63% complete (61% avg.) and quality is reported to be very good. The US Plains, Canada, Australia and most of Europe is looking like it will be hot and dry, while rain in Russia is hindering winter wheat harvest. Dry conditions have wheat planting in Argentina 10% ahead of avg. at 87% complete on 7% (6.1mln ha) more area. However, the crop is only rated 40% G/E (vs LY’s 65%).
- Even though USDA carryout stocks were as expected, the USDA’s feed use #s are questionable as ‘17/18 was cut 20 mln bu to a 10-year low of 50 mln bu, but ‘18/19 feed was raised 10 mln to 130 mln bu. The report had exports up 25 mln bu, but this could/will be raised further as a tight global wheat supply will increase demand for US wheat.
- WASDE cut wheat production in Australia by 8.33% (2 mln mt) to 22 mln mt.
- Many in the trade are still below the USDA’s revised Australian crop number of 22 mln mt.
- Australian futures rose A$11/mt to a contract high close.
- Dry conditions have wheat planting in Argentina 10% ahead of avg. at 87% complete on 7% (6.1mln ha) more area. However, the crop is only rated 40% G/E (vs LY’s 65%).
- USDA left the Argentine crop unchanged at 19.5 Mmt
- Argentine old crop 11.5% protein was offered at US$238/mt, new crop 11.5% protein wheat was quoted at US$195/mt, and 12% protein at US$201/mt.
- WASDE lowered Chinese production by 1 mln mt to 128 mln mt (vs Chinese Govt #s 122.5 mln).
- WASDE cut EU wheat production and exports by 4.4 mln and 1.5 mln mt, respectively, and there is a strong argument that production could fall significantly further.
- Poor weather in Germany and France has Strategy Grains lowering EU ‘18/19 production 7.5 mln mt to 132.4 mln mt (vs USDA’s 145 mln mt), 7% lower than ‘17/18’s 141.8 mln mt. This, combined with the USDA’s unlikely 10.39 mln mt of EU ending stocks (which amounts to about 3 ½ weeks worth of wheat), makes it look like the USDA’s 27.5 mln mt of EU exports (a 1.5 mln mt decrease from June) is still too high.
- French wheat ended the week almost US$20/mt above Russian 12.5% protein wheat and US$30/mt above Black Sea 11.5% protein wheat in the nearby.
Black Sea wheat:
- USDA cut another 2.5 mln mt from the FSU crop (now down 21 mln mt relative to last year) with Russia at 67 mln mt. Note the Russian Govt. went to 64.4 mln mt, on poor yield results and the lost spring wheat acres.
- Russian 12.5% protein wheat was unchanged for August at US$202/mt, but the September carry widened to US$8/mt with a further US$5/mt/month beyond that.
Significant purchases/ trades:
It was a very quiet week in cash trade, while buyers watched good crop conditions and wondered what new trade developments might occur.
- Egypt (GASC) bought 175k mt Russian wheat at around US$204/mt Fob.
- Syria reported buying 200k mt at US$195/mt C&F (which is below the Fob value).
- Saudi Arabia tendered Friday for 595k mt wheat for Sep-Oct.’18 shipment.
- Wheat market support came mostly from the USDA world numbers, where production was lowered by over 8 mln mt, with notable declines in three of the world’s major exporters (the EU, FSU and Australia), while world ending stocks fell by over 5 mln mt from last month and 13 mln mt on the year.
- In addition, the market considers the USDA’s EU and Black Sea wheat export numbers as too high, which should eventually switch additional demand into the US S&D.
- US wheat became more competitive against the EU and Black Sea wheat with HRW 11% protein wheat ending US$3/mt below German wheat, and SRW ending Fob US$10/mt below French wheat. CBOT Sep futures over $30/mt below Matif wheat.
The EU and FSU are rapidly losing major volumes of wheat export potential, and with dryness an ongoing concern in Australia, there is potentially scope to shift big volumes of export demand into the US in the second half of the season, and it’s tough to be bearish at these levels.
Canadian elevator bids for nearby wheat should be ignored for the present.
Primary elevator bids data source: PDQ
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