Grain market review: Wheat

by Chris Lyddon
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Wheat
 
The wheat market is well-supplied, but the weather so far this year has given rise to concerns over quality in some of the world’s most important producing regions.

After a first half to the year that produced a series of weather surprises, the start of June was dry and warm in many parts of the northern hemisphere.

“Global wheat markets closed up once again last week, with hot and dry conditions in key growing regions driving the gains,” Britain’s AHDB Cereals and Oilseeds said in a report published on June 20.

“U.S. spring wheat conditions were the lowest since 1988 for the week ending June 12, according to the USDA,” AHDB said. “The fall in conditions follows increased dryness across key spring wheat growing states.”

The condition of soft wheat in France fell slightly in the week ended June 12, according to the latest data from FranceAgriMer.

“World wheat export prices continued to have a generally weak tone amid outlooks for another year of ample supplies,” the International Grains Council (IGC) said in its Grain Market Report. “However, market participants closely monitored unfavorable weather for 2017 crops in some areas, especially in the U.S., Canada and the E.U., with uncertainty about potential damage triggering occasional spikes in futures.”

Its IGC GOI wheat sub-Index posted a net 3% increase since the previous month, with advances led by export quotations in North America.

“Activity in U.S. futures was often focused on the weather,” it said. “Concerns about poor conditions for domestic crops provided support, but upward momentum was often tempered by perceived mostly favorable production prospects in other northern hemisphere growing regions, with the outlook for global supplies still seen as heavy.

“However, amid reports of disappointing results from the early stages of HRW harvesting, worries mounted about the outlook for higher-grade supplies, with ideas that the firmer price trend might become more entrenched. Since the last report, nearby U.S. Gulf export quotations for HRW rose by $12, to $201 fob, while SRW gained $3, to $179 fob.

“Although concerns about E.U. crops were not entirely reversed, improving conditions in certain areas weighed on local values, including in France, with nearby MATIF futures trading close to contract lows at times. A deteriorating export outlook owing to unfavorable currency movements added to bearish sentiment, although solid demand for feed wheat provided underpinning, especially in Germany.”

Global wheat production and ending stocks
*Projected     **Forecast
Source: USDA
 
In its Agri-Commodities Monthly report, Rabobank described the outlook on wheat prices as neutral, but suggested there was a need to monitor the weather amid quality concerns.

“U.S. wheat is — after a two-year absence — again competitive in Egypt’s GASC tender, supported by a lower U.S. dollar and tight European stocks,” Rabobank said. “The latest Egyptian tender revealed how big the price difference is between the U.S. and the rest of the world. The U.S. offered a price of $11/tonne below Black Sea wheat.”

That offset the $11.8 freight advantage of Black Sea wheat.

“This might signal a reopened outlet for U.S. large wheat stocks, while also showing the effect of a weakening U.S. dollar,” Rabobank said. “Crop damage from the early May U.S. snowstorm seems to be limited, but cold weather could result in lower protein levels. Abundant rains in late April and May have been beneficial for the heading phase of winter wheat, but as the crop matures, warm and sunny weather is required to push protein levels higher.

“First HRW harvest in Texas indicated protein levels below 10% and yields down 10% to 35%, compared to last year. U.S. weather is forecast to remain cold and wet for the beginning of summer, and as a result, has stimulated some end users to buy additional old-crop wheat to secure higher-protein wheat.”

Rabobank reported generally improved wheat in France, Ukraine and Australia.

“Rains finally hit French core wheat areas, but soil moisture remains dryer than ideal,” Rabobank said. “As a result, 75% of the French crop is in good/very good condition, compared to 85% last year. French yield is estimated at 6.6 tonnes/hectare, which is — for a second year — below the five-year average of 6.9 tonnes/hectare.”

Rains are forecast for the coming weeks in several key production areas.

“Eastern Ukraine experienced a dry spring, but recent above-normal precipitation fully replenished soil moisture,” Rabobank said. “Other parts of the Black Sea region also saw favorable weather conditions, bringing yield expectations slightly above average. In the southern hemisphere, Australia’s south and eastern wheat areas received good precipitation, stimulating the germinating crop.”

 

 

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