Wheat futures have given up a lot of their midyear rally in the last week under a combination of factors.
A major factor was the monthly USDA report, which was not as bullish as expected. In the wake of that, it is rumoured that a hedge fund in the UK sold off a lot of long (bought) positions, triggering a selloff the day after the report was released. Heavier rains than forecast then hit parts of the US spring wheat areas and corn belt.
Forecast temperature levels were also pulled back a little, reducing the threat to the corn crop pollination.
A major factor in the USDA report was leaving forecast corn yields unchanged despite dryness creeping across parts of the corn belt.
The USDA assessment was that the dryness in June was not significantly below normal to warrant a drop in yield estimates at this stage.
A stronger corn market is pivotal for wheat futures this year, as it will allow demand for wheat in feed rations to be maintained, feeding into reduced wheat stocks at year’s end and thus providing price support.
For wheat, the USDA also came in with a winter wheat production forecast that was above market expectations on the back of higher harvested acreage and yields.
This pressured all wheat prices, despite spring wheat production levels coming in as expected. The confirmed decline in spring wheat production will put a lot pf pressure on high protein wheat supplies in the US, with spring wheat stocks moving to multi year lows. Premiums for higher protein wheats should be strong this year.
Overall, the USDA report was termed bearish, mainly because expected yield reductions for the US corn and soybean crops did not come through.
For wheat, global production was lowered with declines for the US, Australia, China and the EU, but the Russian production estimate was lifted by 3 million tonne, and Turkey by 1.5 mill t.
The problem for wheat is the ongoing large supply from Russia, which will continue to fill the gap from the EU and keep pressure on global wheat prices. The reality is that a midyear price rally needs support from multiple sources. A larger Russian crop is not helpful.
Global wheat stocks are down 590,000 t from June, but will still be up 2.55 mill t year on year. That is in part because of reduced production and stocks in China.
Excluding China, stock estimates were actually increased – not helped by a lift in opening stock estimates compared to June. This is a measure of stocks now being watched closely, so any lift will be considered bearish by the market.
The net gain remains at 43.5 US¢/bu, with weather in the US corn belt likely to be the main driving factor in the next few weeks.
