Spring Wheat Prices Diverge From Minneapolis, Chicago

Wheat markets, last week, saw significant divergence of price action between the three markets.

Spring wheat surged higher by 23 cents while Kansas City was unchanged, and Chicago was 3 cents higher.

Of course, the issue with spring wheat is the ongoing delay to finish the harvest. By now, most of what remains in the field would be feed quality as persistent rains and cool temps encourage sprout. And now some producers must contend with snow. It's been a brutal finish to the spring wheat harvest.

The quality and production losses have supported Minneapolis, but the other markets have been reluctant to follow. Big crops across the Northern Hemisphere are keeping prices in check. Indeed, Russia increased their spring wheat production estimates by a couple million tons as yields are better than expected. This follows a high protein winter wheat crop in their Southern region. The decline in North America's milling grade production is likely to open doors for Russian sales.

This time of year, the market normally becomes more focused on Southern Hemisphere production. Argentina has run into some dry conditions and will likely see downgrades to its production but is still looking at a near-record crop. Australia was on track to break out of the drought cycle, but the last few weeks has seen the dry conditions return and production estimates are in quick decline. It looks like Australia will see another very disappointing year.

World wheat prices have improved over the last week. Russian FOB offers were about $3/MT higher in the Egyptian purchase last week, providing some support to overall world prices.

U.S. exports have lagged the last couple of weeks, and the market expects the bulk of business will still likely flow to Europe and the Black Sea. Argentina has been aggressively selling as much grain and oilseeds as possible, in front of expected export tariffs. With their harvest beginning in about a month, we can expect more of their wheat to hit the world pipeline starting in about six weeks.

I look for winter wheats to see limited upside price action. Kansas City has had trouble getting beyond the May lows, and my guess is that we will turn lower from here for a short correction. There is still a good chance we'll then get another leg up into late Oct/early Nov, but I would look for more pressure as the Southern Hemisphere production moves into world channels. Spring wheat looks to keep moving higher at least in the short term.

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