Fleursdumal
फूल की बुराई
June 2, 2008
Slow Harvest Supporting Wheat
Wheat markets were relatively quiet last week, getting some support from harvest delays, a stronger corn and bean market, and funds’ end-of-month short covering. However, rallies were still limited because of the impending harvest and a world wheat crop that appears to be getting bigger.
The International Grains Council released their monthly world wheat estimate, raising it 5 MMT from their last month’s estimate to 650 MMT. The majority of the increase came from the European Union, Russia, Ukraine and the US. Their estimate is still below USDA’s latest estimate of 656 MMT. Last year, world production was 604 MMT.
Harvest delays in the southern plains are creating flashbacks from last year when persistent rains eventually caused extensive damage across much of the southern and central plains. The delays are definitely not to that point as of now, but the slow movement of grain from the fields is supporting basis in the gulf where exporters had expected plenty of supplies to fill ships, and are now having to scramble to fill their cargos.
The rains are also causing concern about the health of the soft red winter crop in the Midwest, with talk of potential disease issues due to the wet conditions, primarily wheat scab. The market has certainly been factoring in a huge soft red crop, with old crop supplies already moving into feed channels. A drop in yields could quickly change the dynamics of that market as well.
The rest of the Northern Hemisphere continues to progress through the growing season in very good shape. Plenty of moisture and moderate temps in almost all growing regions are setting the stage for this big crop to get even bigger. Russia is reporting that they will cut their biggest crop since the mid 90’s at 51.5 MMT, compared to USDA’s estimate of 52 MMT; last year they harvested 49.4 MMT.
Already this year, with Ukraine aggressively moving old crop stocks (after months of restrictions), the Black Sea region is once again the lowest priced seller in the world. They have recently stated that they will export more wheat this marketing year than the US; according to USDA’ last supply/demand report, they are expected to export 24.9 MMT while the US is projected to export 26.5 MMT.
In the Southern Hemisphere, things are getting interesting in both Australia and Argentina. Recent dryness has continued to delay wheat plantings in eastern Australia, namely in New South Wales which produces about 30% of the total Australian wheat crop. Rains were forecast for this week, but so far have fallen mostly in Queensland, just to the north. Argentina is still mired in the farmer vs. government debate, and have just begun their third farmer strike in as many months to protest excessive export taxes on ag products. The strikes, along with dry weather, have slowed wheat plantings and Argentina is expected to see plantings down about .5 million hectares to 5 million, which would be a 14-year low. In reaction to the uncertain supplies from Argentina, Brazil has announced that their wheat plantings will be higher this year.
The price action shows the market holding for several sessions at the weekly lows from mid November. While this support may hold for the near term, the odds are good that there is still more downside in this market, particularly as harvest moves north. I would expect wheat to find its seasonal bottom in the normal time window of mid-June to mid-July. Typically, the seasonal low comes in when harvest is in central/north Kansas, which will likely be early July this year as the crop is 2-3 weeks behind schedule. Keep in mind, too, that Nebraska and South Dakota could continue to add pressure to the market as they have had very good rains this season and could see their yields improving late in the season. The next major downside support on both Kansas City and Chicago July contracts is the breakout level of $7.00, with the range from $6.50 - $7.00 offering very good support.
Slow Harvest Supporting Wheat
Wheat markets were relatively quiet last week, getting some support from harvest delays, a stronger corn and bean market, and funds’ end-of-month short covering. However, rallies were still limited because of the impending harvest and a world wheat crop that appears to be getting bigger.
The International Grains Council released their monthly world wheat estimate, raising it 5 MMT from their last month’s estimate to 650 MMT. The majority of the increase came from the European Union, Russia, Ukraine and the US. Their estimate is still below USDA’s latest estimate of 656 MMT. Last year, world production was 604 MMT.
Harvest delays in the southern plains are creating flashbacks from last year when persistent rains eventually caused extensive damage across much of the southern and central plains. The delays are definitely not to that point as of now, but the slow movement of grain from the fields is supporting basis in the gulf where exporters had expected plenty of supplies to fill ships, and are now having to scramble to fill their cargos.
The rains are also causing concern about the health of the soft red winter crop in the Midwest, with talk of potential disease issues due to the wet conditions, primarily wheat scab. The market has certainly been factoring in a huge soft red crop, with old crop supplies already moving into feed channels. A drop in yields could quickly change the dynamics of that market as well.
The rest of the Northern Hemisphere continues to progress through the growing season in very good shape. Plenty of moisture and moderate temps in almost all growing regions are setting the stage for this big crop to get even bigger. Russia is reporting that they will cut their biggest crop since the mid 90’s at 51.5 MMT, compared to USDA’s estimate of 52 MMT; last year they harvested 49.4 MMT.
Already this year, with Ukraine aggressively moving old crop stocks (after months of restrictions), the Black Sea region is once again the lowest priced seller in the world. They have recently stated that they will export more wheat this marketing year than the US; according to USDA’ last supply/demand report, they are expected to export 24.9 MMT while the US is projected to export 26.5 MMT.
In the Southern Hemisphere, things are getting interesting in both Australia and Argentina. Recent dryness has continued to delay wheat plantings in eastern Australia, namely in New South Wales which produces about 30% of the total Australian wheat crop. Rains were forecast for this week, but so far have fallen mostly in Queensland, just to the north. Argentina is still mired in the farmer vs. government debate, and have just begun their third farmer strike in as many months to protest excessive export taxes on ag products. The strikes, along with dry weather, have slowed wheat plantings and Argentina is expected to see plantings down about .5 million hectares to 5 million, which would be a 14-year low. In reaction to the uncertain supplies from Argentina, Brazil has announced that their wheat plantings will be higher this year.
The price action shows the market holding for several sessions at the weekly lows from mid November. While this support may hold for the near term, the odds are good that there is still more downside in this market, particularly as harvest moves north. I would expect wheat to find its seasonal bottom in the normal time window of mid-June to mid-July. Typically, the seasonal low comes in when harvest is in central/north Kansas, which will likely be early July this year as the crop is 2-3 weeks behind schedule. Keep in mind, too, that Nebraska and South Dakota could continue to add pressure to the market as they have had very good rains this season and could see their yields improving late in the season. The next major downside support on both Kansas City and Chicago July contracts is the breakout level of $7.00, with the range from $6.50 - $7.00 offering very good support.
