Big Wheat Crops Coming

The wheat complex held together for most of the week while corn and soybeans came under more pressure. On Friday, however, following the supply/demand report, wheat led the way lower into new contract lows.

Persistent negative fundamentals continue to hammer the grain complex, and the uncertainty over the US/China trade talks even staying alive is adding to the bearish sentiment. With China walking back some of their commitments, and the US imposing more tariffs it's hard to see how the talks get back on track. That said, if the talks implode, everyone loses.

Wheat production prospects continue to look impressive. USDA issued their first look at the 2019/20 year on Friday, and it suggests things aren't going to get easier this next marketing year. All wheat production for the US was pegged at 1.897 billion bushels, up 13 million over last year despite acreage being down 2.0 million acres (a record low).

Hard red winter wheat production was pegged at 780 million bushels, up 118 million over last year; soft red at 250 million would be 36 million less than last year and white wheat at 230 million is 6 million less than last year.

Old crop ending stocks were raised 40 million to 1.127 billion bushels, following a 20 million drop in both exports (925 million) and feed usage (50 million). New crop end stocks are pegged at 1.141 billion bushels with exports for 2019/20 projected at just 900 million.

USDA estimates that all the major foreign wheat exporters will see an increase in production, collectively up 34 MMT, an 11% increase. The European Union is expected to see a 17 MMT increase to 154 MMT, up 11%; Ukraine up 4 MMT to 29 MMT, up 16%; Russia up 5 MMT at 77 MMT (up 7%); and Australia next fall is pegged to increase production by 5 MMT to 22.5 MMT, up 29%.

It is worth noting that while USDA is estimating Russian production the second largest on record at 77 MMT, SovEcon is already estimating Russian production at 83.5 MMT, still second to 2017's record 85 MMT.

Not hard to see why wheat is on its face. The trajectory of US and world production is strongly higher, and the export competition will be fierce. Granted, it is still early in the growing season and it's possible something could come out of left field, but it would have to be soon, and we don't see anything looming in the forecast – for the major exporters. We do some possible drought issues in China, which is no small producer but not a major exporter. They also already hold 50% of the world's wheat stocks and 61% of corn, so they do have some buffer against lower production.

Seasonally, we're normally forging a high about this time in May. Obviously, that won't happen this year. However, oftentimes when the market goes the opposite of the normal seasonal pattern, we still get a trend shift in the usual time window. This extended bear move has been punctuated by a negative crop report at a time when we normally get a major turn in the market. Yes, fundamentals are primarily bearish and harvest is just around the corner, but I would look for a significant low to be established soon.

Louise Gartner,

Owner, Spectrum Commodities

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