Australian wheat shipping terminal

The hits keep coming for the wheat market. Last weekend, the wheat market fell to fresh 3-year lows after the USDA released data showing the US spring wheat production was larger than expected (up 2.1mmt year on year). The increase in production probably didn’t justify the 30c/bushel move lower, just shows that the managed money crowd will use any information to short this market.

The move lower put US wheat as some of the cheapest in the world. This in turn had the desired effect of flushing out some bargain hunters with China emerging as a major purchaser of US SRW. Fundamentally, wheat at 540c/bushel is far too cheap given the tight stocks going forward.

The wheat market is also paying attention to the news that at least another 11 bulk carriers are moving into loading positions along Ukraine’s deep seaports. Rumours are swirling that a new ‘corridor’ deal is in the wind with Turkey believed to be close to a deal with Russia. Doubts exist as to the veracity of the rumours as Russia has steadfastly claimed without re-admittance to the SWIFT financial system and greater oil and fuel exports, there would be no deal. As of this morning, the rumour appears to be just that, a rumour.

Heavy rain fell over much of Australia’s East Coast this week. The rain will help arrest the slide in production due to persistent dry conditions in NSW and Victoria. The rain is also likely to cause a wave of growers selling in those states which had been holding off pre-season sales. No doubt there will be tales of woe caused by spoiled hay or lodged crops, but the rain will allow grains to fill and potentially add to production.

So, what is going to turn this ship around? China is believed to have bought 1MMT of US wheat in the past week. This could dramatically change the carryover stocks’ outlook should this pace continue. I’m also watching the developing drought in Argentina (short term) and longer term, keeping an eye on dry conditions in Ukraine and Russia. Winter seeding of cereals and rapeseed is slightly delayed due to dry conditions raising concerns over early establishment and development.

This may not feature in the market outlook until the new year. We are always going to get speculation around the new crop, but with the managed money crowd so heavily short, anything that threatens their position could be quite explosive.
 

Next week

Chinese wheat demand will be closely watched. Originally it was believed China would be requiring between 7-10Mmt to meet domestic requirements after floods damaged their crops earlier in the year. Was the damage worse than reported? Are current prices simply too good to ignore?

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Click on graph to expand

Click on graph to expand

Data sources: Reuters, SovEcon, USDA, Next Level Grain Marketing, Mecardo

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