Wheat Market Rises on Trade Agreement Coattails

When we try to quantify how much wheat would be involved in the China business, the numbers don't look that big. Some estimate about 250,000 of higher quality wheat.

We'll take it but it's not a game changer. They typically buy spring wheat to blend with their own, and we have plenty of high-grade springs. The world has plenty of high-grade wheat, but Chinese purchases would shift at least some business to the U.S. With the North American agreement coming into place, we will see Mexico ramp up grain purchases as well.

Wheat is also finding support from steadily rising world values. Russian FOB offers were higher again this week, and Egypt purchased wheat from four different countries at $238/MT CIF, $4/MT higher than last week. Slow farmer selling out of Russia has supported domestic, and thus world, prices. But that just bunches up selling down the road.

Wheat markets started this week in typical quiet, holiday trade. But on Thursday prices shot higher on news that two trade deals had finally reached agreements. The USMCA deal was all but done, which would give a major boost to grain and livestock markets. And, trade negotiators announced that Phase 1 of the U.S./China trade deal may actually happen soon as well. Friday saw confirmation that a China deal had been struck, but details were sketchy. Prices pushed higher early Friday only to give the gains back by the close.

Still, last week, Kansas City wheat was 12¢ higher, Minneapolis 14¢ higher, and Chicago 8¢ higher. Corn was up 4¢ and soybeans up 18¢. Hedge funds scrambled to cover shorts in a thin market. No one wants to be aggressively short with the potential for a great deal of business just around the corner.

Prices are also finding support in Europe with winter wheat planting falling far behind schedule. The UK reports only 60% of their wheat planted so far, and France is running about 15% behind normal as well. Strategie Grains has already begun to lower next year's soft wheat production estimates due to the slow plantings, taking them down 5.3 MMT to 140.5 MMT. Planted acres are projected down 2.5%.

Meanwhile, Russian winter wheat plantings are projected up 5% this fall to a new record, and production estimates are already moving above the record of three years ago. World prices will take their cues from Russian production.

Not to be forgotten was the supply/demand report released last Tuesday. USDA lowered imports of wheat by 15 million bushels and increased exports by 25 million, creating a 40-million-bushel drop in ending stocks to 974 million bushels. It was a nice shot in the arm for a wheat complex that has struggled to get upside traction.

Last week's export sales were a solid 502,000 mt., above the high end of expectations. Year-to-date sales stand at 16.9 MMT, up 3% over last year. U.S. weekly sales have had some big swings this year but, on the average, we appear to be on solid footing, despite record world carryout and stiff competition.

Technically, wheat made yet another run at the trading range highs and faltered. Kansas City has a well-defined range top. If and when that gets breached, it projects an additional 30¢ run.