Look­ing for a new sign in the wheat mar­kets?

Prairie Post (East Edition) - - Farm News - BY BREN­NAN TURNER President & CEO, Far­mLead.com

Wheat mar­kets con­tin­ued to be pres­sured to­wards the end of June, but so did the rest of the grain mar­kets com­plex as it tries to price in a global trade war. Note that last week we see man­aged money go net short on corn, soy­beans, Chicago soft red win­ter wheat, and oats. Only Kansas City hard red win­ter wheat spec­u­la­tors are long the ce­real.

Try­ing to sup­port mar­kets has seen some smaller pro­duc­tion es­ti­mates come out across the At­lantic Ocean. French con­sul­tancy Agri­tel said that the 2018/19 Rus­sian to­tal wheat pro­duc­tion fig­ure would come in at 67.4 mil­lion tonnes. The agency blamed ad­verse dry weather con­di­tions for the ex­pected 21.5% de­cline from last year’s record crop. Dig­ging into the de­tails, Agri­tel said that the Rus­sian win­ter wheat crop would come in at 50.1 MMT, a 19% de­cline from the pre­vi­ous year. Rus­sian spring wheat pro­duc­tion is fore­cast to fall by 28% to 17.3 MMT. The agency projects that the av­er­age yield will fall from 46.1 bushels per acre to 38.8 bpa.

This sup­ported wheat prices in the EU, but the num­bers for soft wheat pro­duc­tion in the EU are fac­ing sim­i­lar pres­sures. The Euro­pean Union’s agron­omy divi­sion (MARS) an­nounced that the bloc’s av­er­age soft wheat yields will de­cline by 1.2% year-over-year. The 89.8 bushels per acre pro­jected this week is down from the 92 es­ti­mated last month.

Weak­ness in Europe and Russia are likely go­ing to be Bul­garia’s gain. The na­tion’s agri­cul­tural min­istry said this week that the coun­try ex­pects its 2018 wheat crop to hit an all-time high. The agency pro­jected 6.1 MMT in pro­duc­tion. The coun­try ex­pects its ex­ports to come in around 4 MMT. Look for the coun­try to make a splash in Europe.

Where we once felt ter­ror for a trade war, the grain mar­kets have re­acted with full-blown panic. No spec­u­la­tor wants to play in this risky game where no one knows what the next move is go­ing to be. Thus, the sim­ple so­lu­tion is to get out. That’s what you’ve seen as spec­u­la­tors have sold out of their positions. No one wants to play in the sand­box when sand con­tin­ues to get thrown in their face!

How­ever, we need to avoid some of the “re­cency bias”, which is the ex­er­cise of try­ing to put ev­ery­thing that’s hap­pened in the past month or so into con­text of a big­ger pic­ture. For ex­am­ple, front-month con­tracts for spring wheat prices are trad­ing at ba­si­cally the same value that it was 13 months ago. And yet, US spring wheat ex­ports at this time a year ago were mov­ing along at a pretty good clip.

With this in mind, the 2017/18 US spring wheat ex­ports in 2017/18 were well be­low what was shipped out 2016/17 and the five-year av­er­age.

In Canada, farmer de­liv­er­ies of wheat (ex­clud­ing du­rum) are track­ing be­hind the 3-year av­er­age while ex­ports and do­ing bet­ter than last year and the sea­sonal av­er­age.

Ba­si­cally, the main take­away here is that there has been some strong move­ment in 2017/18 from the port, but not nec­es­sar­ily from the farm. We would ex­pect some pres­sure to­wards the back half of sum­mer as pro­duc­ers look to empty bins. How­ever, it’ll be ba­sis lev­els that take the big­gest hit, with the fu­tures mar­ket not re­ally ac­count­ing for in­di­vid­ual/lo­cal­ized sales ac­tiv­ity. Thus, with the fu­tures fall­ing, one might be wise to start pay­ing more close at­ten­tion to spring wheat ba­sis lev­els.

(Col­umn cour­tesy Al­berta Wheat Com­mis­sion)

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