The market is in a finely balanced state at the minute. The 2020 wheat crop is now largely known, albeit with a few minor adjustments to be made to the Aussie and Argentinian crops. Timely rain in the Black Sea and US Plains has removed some of the concerns around the condition of the winter wheat crop, and with prices where they are, it makes sense to expect that the area to wheat will expand into 2021. As mentioned before, global supplies are more than adequate - on paper at least. Unprecedented demand for food and feed from China, as well as the spectre of La Niña, is keeping a risk premium embedded in the market.

We can see from the table (courtesy @kannbwx) that US export pace is trending above average.  We also know that aside from corn purchases, China was relatively absent from weekly purchases.  Is this an anomaly or the beginning of a slow down?  Demand has been at the forefront of the recent growth in value, so what happens if demand falls?

We fear it could be a slippery slope. If the managed money liquidate their long/bought positions, it could see a fairly sizeable shift in futures. Secondly, as demand falls, the market will have to shift lower to find more demand.

We had been seeing a relatively orderly withdrawal of managed money from CBOT wheat.  Mecardo took a look at this in detail earlier in the week (view article here). Week on week, the commitment of traders report shows that open interest positions have fallen 57% to be ‘only’ 13k contracts long/bought. However, the Thanksgiving public holiday in the US saw a raft of profit taking ahead of the market close to see CBOT Dec ’20 fall 23c/bu. This tells me the sentiment behind wheat has changed from neutral/bullish to being neutral/bearish.

The one thing in wheats favour is that demand for corn and beans hasn’t really subsided and is unlikely to whilst the US remains the only source of immediate supply.  It is commonly thought where corn goes, wheat tends to follow. So long as China keeps buying, there should be no reason to fear a cliff face.

The week ahead….

Watch for a ‘dead cat bounce’ as the wheat market re-opens after Thanksgiving. 

Have any questions or comments?

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Click on graph to expand

Click on graph to expand

Click on graph to expand

Data sources: USDA, Reuters (K Braun), Next Level Grain Marketing, Mecardo. 

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