- We have been advising of reduced Russian wheat production and exports for some while, since May according to our records. The key question going forward is what are minimum stock levels (pipeline) of wheat in a country that has 11 time zones. Are minimum Russian wheat stock levels at 7-10 million mt or is it as small as the USDA argues at 4.8 million. At the USDA total, the Russian stock/use ratio would drop to an incredibly tight 7%. This seems too low for the world’s largest wheat exporter with spring wheat stored in abundance in Siberia. The question is important as it gets to the wheat export ability of Russia in the 2018/19 crop year. Russian 2018/19 wheat exports are cut by the sum of any increased stocks!
- Chica Chicago futures are “pulling back” at midday from strong overnight gains as traders understand that the EU will not buy any more US soybeans than before the US/EU trade deal, and that the N Plains Spring Wheat Quality Tour will end today (Tour Results out this afternoon) with US wheat futures then having to focus on the US’s high price compared to other world sellers. Chicago likely formed its high early in the trading session with the bulls expected to take profits heading into the weekend. It seems that wheat, corn and soybeans had reached initial upside price targets and correction lies ahead into the weekend with US weather nonthreatening. The USDA August Crop Report will become more of a market factor next week.
- Chicago brokers estimate that funds have bought 3,400 contracts of wheat and 4,500 contracts of corn, while selling 2,100 contracts of soybeans. In soy products, funds have bought 2,600 contracts of soymeal and sold 2,100 soyoil. US wheat futures have been following the sharp gains in Minneapolis wheat futures in the past two days based on the Tour’s assessment of a smaller US harvest.
- Minneapolis spot wheat futures have rallied near a weekly downtrend line before starting to retreat. And Chicago and Kansas wheat futures rallied back to the spot May and 2017 highs before retreating. With US wheat sales/shipments lagging well behind last year, traders will take profits on the rally and wait to gauge EU, Russia, Canadian, Australian and Argentine crop sizes. For now, wheat should consolidate its gains and await important world wheat crop updates. Remember that Russia is still exporting record tonnages of wheat with July exports likely to equal a record 2.5-2.7 million mt.
- The US$ has leveled off this week with China slowing allowing its Yuan to slowly weaken. The US/EU trade deal has placed a bid under the €uro, but we see no reason for the US$ to substantially weaken with US rates to continue to rise into mid 2019. The EU Central Bank said today they are on hold for the next year. This means that investors will continue to flock to the US. The US 10 year Treasury note is trading at 300 basis point premium to the 10 year German bund, why not reach to the US for a higher yield.
- The central US GFS weather forecast remains generally favourable for summer row crops. A low pressure trough drops into the Great Lakes on the weekend producing cool/dry weather across the Northern and Western Midwest. As the cooler temperatures push southward, a front will develop between the cool air to the north and the warm/humid weather to the south. This is where showers/storms will fire. The best rain chances are across the C Plains and into the S Midwest/Delta with rains of 0.5-1.50”. Rains return across the W Midwest in the 7-10 day period as a high pressure ridge located in the SW US progresses eastward. The GFS forecast wants to produce a more zonal upper air flow in the 11-15 day period and return a chance of near/above normal Midwest rainfall.
- EU wheat futures are extremely overbought and the weaker closer argues for a US futures correction. Whether the correction is one of sideways or a 15-30 cent drop from a high will help define the next rally leg. US soybeans lack a story and a US yield above 50 bushels/acre could push US 2018/19 soy stocks to a record high. US corn has a strong demand outlook, but it is yield that determines when the rally starts in earnest. Analysts corn yield estimates are all closely bunched together at 177-179 bushels/acre (is this a surprise?).