Wheat showing signs of potential upside?

The World Agricultural Supply and Demand Estimates (WASDE) Report was released late last week, and while there was some movement in production, the market was largely unmoved.  Global ending stocks remain historically tight, the lowest since 2015-16, yet the market is still happy to have prices floating around the pre-Russia-Ukraine war levels.

Figure 1 shows the CME Soft Red Wheat (SRW) has hit a three-month high, it remains well below the levels of last harvest.  Hindsight is pretty good with grain marketing, but the June rally, which was just prior to harvest in the US, was a great time to sell.  It looked like a dead-end rally, and so it turned out.

The lows SRW hit in August, towards the end of the northern hemisphere harvest appear to have set a floor for the market for now.  With stocks historically tight, and southern hemisphere harvests on the wane, if anything, it wouldn’t surprise to see a little more strength in international wheat markets as we head through October and November.

Domestically wheat prices have followed a similar trend to SRW.  Figure 2 shows wheat lifting off the doldrums, when you didn’t have to be far upcountry to see prices slipping below $300/t.  Since September the supply uncertainty caused by frost and dry weather helped support prices.  However, if we measure the increase from the low to current prices, we haven’t seen much basis improvement at all.

Harvest could see the basis weaken, but there is plenty of room for improvement if we see some wet harvest weather or some lower-than-expected yields.