Wheat Finds A New Low

Wheat markets came back from the long Labor Day weekend under pressure, establishing new contract lows in Kansas City and Minneapolis, and a new low for this move in Chicago. Pressure in corn with improving Midwest weather also added to the negative bias for wheat.

The massive spring wheat harvest is grinding along, and it looks like rains may delay some regions across the north. With tons of wheat being piled on the ground, it is hard to envision the spring wheat futures staging any kind of sustained rally as producers will be quick to price wheat on even small rallies. In addition, spring wheat's very high loan rate is already encouraging farmers to plant yet more spring wheat next year – the opposite of what the market is telling them to do.

Kansas City/Chicago spreads have seen a notable increase in trading activity the last few weeks. With KW trading at record discounts to Chicago, the spread has prompted commercials to deliver hard red winter wheat against the Chicago soft red winter contract. KW/W got pressed early in the week, but bounced impressively the last couple of days, finding support at the historic lows.

World prices continue to work lower, with Russian FOB down another $3/MT this week. Ranging from $185-187/MT, Russian prices dropped about $5/MT from last week and $10/MT from just a month ago. But that pales in comparison to the $42/MT drop from a year ago, a whopping $1.15/bu.

After a slow start to their export season, it's full-on for Russian exports now. They've re-asserted themselves as the dominant seller to Egypt and are poised for major scores to Saudi Arabia and China. Recent approvals from both countries to accept Russian wheat will pretty much complete the global dominance they set out to accomplish just a short 20-some years ago.

Russian production not only continues to increase, so does their quality. Which is why their farmers were slow to sell this year. With high protein wheat harvested across much of the southern region (where most of their exportable supplies originate), farmers wanted higher premiums. But that wasn't going to happen with the rest of the Northern Hemisphere also producing high quality wheat.

But cash demands force selling no matter what country you farm in, and now wheat is flowing in Russia. And it's flowing across the Northern Hemisphere as well, where the market knows how much is out there and where it is.

Now the market turns to the Southern Hemisphere and we see Argentina projecting a crop of 21.0 MMT, another record. There are some dry pockets developing in the western growing regions, but so far it hasn't worried the market. Australia is still trying to shake the drought with dryness lingering in the southeast, but their crop looks better than it has the last two years.

The story for wheat is that is has no story. We can hope for this push downward to establish the seasonal lows, but a trading range for the rest of the marketing year would be a win. Unless something comes of left field or corn gets an early frost, it will be difficult to sustain lasting rallies in wheat.