Wheat Prices Hold Above Harvest Lows

Wheat markets were slightly higher for the week, spending a lot of time testing harvest lows before finally catching a bid.

After last week's late rally on news that the U.S. captured some of the Egyptian business, there wasn't much follow-through to the upside this week.

Russia wasn't having any of the U.S. taking its business, so it quickly lowered FOB offers to bump us out of the competition. Russia's government also raised wheat production estimate on an increase in spring wheat yields; they raised export estimates as well to between 30-33 MMT, much higher than the 25 MMT the trade had dialed in. U.S. futures slid, testing harvest lows yet another time until a sharp rally in soybeans pulled corn and wheat higher.

A tweet from the President raised hopes that the U.S./Chinese trade war would find some resolution shot the soybean and stock market higher on Thursday, lifting most of the Ag markets in the process. We'll see how far that tweet/rumor takes us. I'm not holding my breath.

Export sales perked up last week. At 583 TMT, it was a significant increase from the last several weeks. Higher quality wheats of hard red winter and spring wheat continue to be the largest sellers. This could be the beginning of the increase in U.S. sales that has been expected for the last few weeks.

The expected increase in US exports hinge on a few factors, the first being the expected slowdown in Russian sales. On a FOB basis, the U.S. is actually lower priced than Russia, but transportation costs are still the limiting factor for us in the key Egyptian market. But other buyers are already shifting purchases to the U.S., especially for milling grade wheat.

It is worth noting that this week the Russian government proceeded in their threat to shut down elevators that were delivering low quality wheat, with 5 on the chopping block this week. Clearly, even if Russia can keep up the volume of sales, delivering milling quality wheat will be more challenging for the remainder of this marketing year.

Another reason is the declining production estimates from the Southern Hemisphere. Normally, this time of year we begin to see wheat prices come under pressure as the Southern Hemisphere's harvest ramps up. This year will be different. We don't expect to see much production or exports out of Australia, where drought has ravaged the country for the second year in a row. In fact, Western Australia exporters are finding that it is cheaper to sell wheat into the eastern part of the country than it is to sell into the Southeast Asian markets. If that occurs, then it really opens up the potential for soft red and white wheat U.S. sales.

Also, Argentina continues to downgrade wheat production and quality. While they will still have a generally good yielding crop, early season freezes took a toll on quality. Another freeze is forecast for this weekend, and they are projecting another drop in quality for some of their crop. With Brazil's crop also facing quality problems, we could see most of Argentina's milling supplies head straight to Brazil.

Clearly, world supplies are not in an extremely tight supply condition, but are definitely declining, particularly for milling quality. We see Minneapolis performing better than the winter wheats, and with a good supply of high quality spring wheat, the U.S. is well-positioned to take advantage of the ultimate shift in demand to us.

I think Minneapolis will also be in prime position to benefit from what is likely to be a scramble for wheat acres next spring. Winter wheat plantings in all of the major Northern Hemisphere growing regions experienced difficulties this fall, and it is likely that world wheat plantings will be less than needed to keep up a comfortable supply margin.

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