Wheat Futures Down 4.5% On the Week After Ukraine Concluded its 2022 Harvest

Wheat futures Friday followed a broad set of other commodities higher despite the strong U.S. Dollar following the September Jobs report. However, on the week they were down 4.5%. Since the summer prices have been curbed by increasing volumes shipped from Ukraine through the Black Sea corridor. Ukraine’s agriculture ministry reported its 2022 wheat harvest concluded with a total estimated production of 705.5 million bushels, significantly lower than last year’s 1.183 billion. A fifth vessel chartered by the United Nations World Food Programme (WFP) left Ukraine’s Black Sea port of Chornomorsk to deliver 30,000 tonnes of Ukrainian wheat to Ethiopia. 

Wheat

With droughts and the Ukraine turmoil the world is heading towards even tighter grain inventories in years. The annexation by Putin of Ukraine areas puts at risk the resumption of exports from Ukraine. The shipments were already too few and harvests from other major crop producers are smaller than initially expected. Off-farm stocks are down 13% year-over-year to 1.18 billion bushels.

The price direction will depend on how much wheat and corn actually comes out of Ukraine in the coming weeks. The deal has been recently criticized by Vladimir Putin, who wants to see amendments added to it before it is extended in November.

The USDA’s release of the June 30 Acreage report all-wheat acres firmed 1% higher from last season, with 47.1 million acres fueled the previous selling.

Wheat Futures Highlights

  • December Chicago SRW futures picked up 4.25 cents to $8.8325,
  • December Kansas City HRW futures added 7 cents to $9.72,
  • December MGEX spring wheat futures gained 12.5 cents to $9.75
  • Preliminary volume estimates were for 65,652 CBOT contracts, sliding slightly below Thursday’s final count of 74,635.

Wheat Technical Outlook

KnovaWave analyze US Wheat futures given its high beta relationship and more liquid aspect as an investment vehicle.

Wheat bounced again between the 50 and 61.8% Fibs. Drawn higher by the flat weekly cloud and supported by 0/8 which held. It closed over the 50wma after holding the 61.8%. The contract stabilized after it continued its sharp impulsive collapse fueled from when it retested and broke the Tenkan (orange). This came about after a failure at retesting the 8/8 move and high after it spat 8/8, and the minimum target. It had completed a measured 4/8 correction off highs then broke key support at 38% then 50% and 50wma confluence in the freefall. From here Wheat support at that $700 cloud confluence with the breakup level at 61.8% resistance, then Kijun and Tenkan.

WEAT ETF Weekly Chart via KnovaWave

Going into the WASDE report on Wednesday, analysts expect USDA to cut the 22/23 wheat carry-out by 47.5 mbu to 562. That comes via wide expectations from 477 on the low end to 637 on the high end. Global wheat stocks have a tighter 8 MMT expected range, from 262.6 MMT to 270 MMT, with the average of estimates for a 700k MT cut to 267.9.

USDA September WASDE

  • USDA expects farmers to harvest 1.783 bb of wheat in 2022-23.
  • Production is unchanged from last month as expected.
  • USDA will update its wheat production forecasts in its Small Grains Summary, which will be released Sept. 30.
  • The agency made no changes to demand, leaving ending stocks unchanged at 610 mb.
  • The national average farm gate price was lowered by a quarter to $9.00 per bushel.

USDA Wheat Stocks

NASS data showed wheat stocks were 1.776 bbu for Sep 1. That was within the range of estimates but under the average expected. Last season saw 1.774 bbu of wheat stocks on 9/1. Q1 usage was implied at 543 mbu off the 1.650 bbu production and carry-in.

Last season saw an implied Q1 use of 717.5 mbu. Specific class production saw 1.104 bbu of winter wheat with 531 mbu of HRW and 337 mbu of SRW. Other Spring wheat was 482 mbu with 64 mbu of durum. White wheat was 272 mbu.

WAOB Wheat Stocks

The world balance sheet saw some shifting around, with smaller US stocks. Carryout was down just 0.18 MMT to 267.34 MMT. Russian wheat production was up 6.5 MMT to 88 MMT, which took stocks 2.75 MMT on larger exports and use. EU production was down 2 MMT, with Ukrainian stocks down 1 MMT. 

Wheat Acreage Highlights

All-wheat acres firmed 1% higher from last season, with 47.1 million acres. “If realized, this represents the fifth lowest all-wheat planted area since records began in 1919,” USDA notes. Here’s a closer look at the acreage breakdown:

  • Winter wheat – 34.0 million acres (up 1%)
  • Hard red winter wheat – 23.5 million acres
  • Soft red winter wheat – 6.86 million acres
  • White winter wheat – 3.61 million acres
  • Spring wheat – 11.1 million acres (down 3%)
  • Durum wheat – 1.98 million acres (up 21%)

Wheat stocks eroded 22% lower from a year ago, meantime, to 660 million bushels. That was slightly higher than the average trade guess of 655 million bushels. Of the total, 93.0 million bushels are in on-farm storage (down 34% year-over-year), with the remaining 567 million bushels stored off the farm (down 19% year-over-year). Disappearance between March and May totaled 364 million bushels, which was down 22% from the same period last year.

Effect of Higher Input Costs on Farmers

A recent report by the Agricultural and Food Policy Center (AFPC) at Texas A&M University shows higher input prices are having a larger impact on farmers than originally thought.

  • Net cash farm income on the representative feed grain and oilseed farms is projected to decline by an average of $534,000 from 2021 to 2022 across the 25 feed grain and oilseed farms.
  • Representative wheat farms face an average reduction in net cash farm income of $399,000.
  • Representative cotton farms face an average reduction in net cash farm income of $716,000.
  • Rice farms face the largest reduction in net cash farm income per farm at $880,000 and a per acre reduction of $442.

Compiled by Joe Outlaw, Ph.D., and Bart Fischer, Ph.D., co-directors of the AFPC.

Global Wheat Output

The International Grains Council raised global wheat output by 8 MMT to 778. That is still down from 781 MMT in 21/22. Wheat carryout stocks were upped by 3 to 275 MMT – still under 280 last season.

Wheat Exporters

USA

USDA export estimates for 2022/23 improved 25 million bushels to 825 million after winter wheat prices are seen as more competitive after falling from multiyear highs earlier this spring. (The season-average farm price tumbled $1.25 from a month ago to $9.25 per bushel.)

Canada

Wheat harvest in the Canadian Saskatchewan province had grain harvest 81% complete through 9/26. Spring wheat was specifically 83% complete and durum was 96% out. BAGE reported their initial 22/23 wheat harvest as 17.5 MMT for Argentina, down by 22% yr/yr.

Australia

The Grain Industry Association of Western Australia expects wheat output to reach 12.1 MMT from the West, up from their prior estimate of 10.75 MMT.

Russia

IKAR raised their forecast for Russia’s crop 2 MMT to 97 MMT.  Last week Russia’s agriculture ministry announced today that it would downgrade its current forecasts for 2022/23 wheat exports of 1.837 billion bushels if production fails to reach a target of 4.777 billion bushels. That’s certainly possible, given a late start to the season due to cold weather, which is now leading to a slower than usual harvest.

Russia’s agriculture ministry reported Friday that the country is prepared to export as much as 30 million metric tons of grain (presumably most of which will be wheat, along with some corn and barley) during the second half of 2022.

“This will support countries in need and help stabilize the global food situation,” according to a statement the agriculture ministry issued. Russia is the world’s No. 1 wheat exporter.

Ukraine

A fifth vessel chartered by the United Nations World Food Programme (WFP) left Ukraine’s Black Sea port of Chornomorsk to deliver 30,000 tonnes of Ukrainian wheat to Ethiopia. 

Ukraine continues to face large production and export challenges amid the ongoing Russian invasion. Meanwhile recent rains have left soil moistures at their best levels in a decade, according to Ukraine’s state weather forecasting center. That should allow for a strong start to the 2022/23 season for winter crops.

Ukraine’s Ag Ministry reported last month harvest reached 99% complete, with 19.5 MMT counted. That is down from 33 MMT last year. Ukraine’s fall harvest is around 60% complete, according to a statement from its agriculture ministry today. Wheat accounts for the lion’s share so far, with 705.5 million bushels. Barley has made the second-most progress, and Ukraine is only at the very beginning of its 2022 corn harvest.

Ukraine’s Agri Council lobby group expect to see ~50% reductions to winter grain planted area. Last year’s area included 8.4m HA (~20.8m acres) with 6.2m HA (~15.35m acres) of wheat. 

EU Soft Wheat Production

European Union grain trade association Coceral raised its soft wheat production estimates to 5.254 billion bushels, citing improved weather in Spain. The group also slightly raised its estimates for French soft wheat production, which is in contrast to some other forecasts because the country has recently been suffering through ample hot, dry weather.

France

French wheat planting reached 3% of expected area through 10/3. 

France’s farm ministry made upward revisions to its estimates for 2022 soft wheat production, moving it to 1.245 billion bushels. If realized, it would still be moderately below last season’s production, due to fewer planted acres this season. Yields are estimated at 107.2 bushels per acre. France is Europe’s top grain producer.

French farm office FranceAgriMer reports that 100% of this season’s soft wheat has been harvested through August 1, up from 95% the prior week. And 99% of the country’s spring barley harvest is also complete, up from 92% a week ago.

Argentina

Argentina has missed out on most of the recent rainfall, leading BAGE to cut the wheat crop forecast to 17.5 MMT from 20.5 MMT reported in May.

The BA Grain Exchange reported that recent frosts in Argentina have caused damage to the country’s 2022/23 wheat crop. Last season, Argentina’s wheat production reached 823 million bushels, but planted acres are down around 9% from a year ago

India

A devastating heat wave this spring has tanked Indian wheat prospects after five years of bumper crops. Private wheat exports from India were banned in mid-May to ensure domestic availability.

India’s ag attaché cut the wheat crop there to 99 MMT. This is 7 MMT below the July WASDE and shaves exports by ½ MMT to 6 million.


Global Wheat Importers

Egypt

Egypt is the world’s top wheat importer and sources a large percentage of its supplies through Ukraine.

Egypt’s purchase total from yesterday’s tender results was increased from 640 to 760 K, from French and Russian suppliers.

Earlier in the month Egypt’s Supply Minister Aly Moselhy said in a news conference on Sunday the country has strategic reserves of wheat sufficient for 5.7 months, He added that the country has procured 3.9 million tonnes of wheat in the local harvest so far.

He added that the strategic reserves for sugar were sufficient for more than six months and those for vegetable oils are sufficient for 6.2 months, while the country is self-sufficient for rice for 3.3 months. The country is a significant importer of all these commodities.

Algeria

Algeria is thought to have purchased as much as 9.2 million bushels from optional origins in a tender that closed earlier today. At least some of the total is expected to be sourced from Canada, although additional details were not immediately available. The grain is for shipment in October and November.

Saudi Arabia

Saudi Arabia issued an international tender to purchase 19.7 million bushels of wheat from optional origins, which is in alignment with its plan to maintain strategic stocks and fulfill domestic milling needs. The grain is for delivery between November and February.

Pakistan

Pakistan passed on all offers for its international tender to purchase 11.0 million bushels of wheat that closed earlier this week. A similar tender is likely to be issued soon, especially considering the fallout from devastating floods that caused an estimated $30 billion in damages earlier this year.

Crop damages due to devastating floods in Pakistan are expected to be more than $1.5 billion. “According to the preliminary estimates, cotton, rice, maize, pulses, potatoes, tomatoes, sugarcane, wheat, chilies, tobacco, oil seeds, millets and garlic were among the vegetables damaged because of the floods,” according to a report that assessed the damages.

South Korea

South Korean feed mills purchased 4.4 million bushels of animal feed wheat, likely sourced from Australia, in recent private deals without issuing an international tender. The grain is for shipment between mid-October and mid-December.

Japan

Japan will import nearly 500,000 bushels of feed-quality wheat for livestock use following a simultaneous buy-and-sell auction that was held earlier today. The country’s agriculture ministry had initially sought up to 2.6 million bushels of feed wheat and 1.8 million bushels of feed barley in today’s SBS auction. The grain is for arrival in Japan in late January.

Philippines

The Philippines purchased 1.7 million bushels of animal feed wheat, likely sourced from Australia, in an international tender that closed on Thursday. The grain is for shipment in January.

COT on Commodities

  • Weekly Commitment of Traders data from CFTC showed managed money firms were 2,178 contracts less net short in CBT wheat through the week that ended 10/4. More shorts were exited than longs, and the group was 12,219 contracts net short on 11,688 contracts (9.7%) less OI.
  • For the KC wheat speculative traders, the CoT report showed short covering for a 25,631 contract net long as of 10/4.
  • In MPLS wheat the funds were 448 contracts less net long at 3,788 contracts. 

Commodity Round Up

Highlights

  • The Bloomberg Commodities Index jumped 5.1% (up 18.1% y-t-d).
  • Spot Gold rallied 2.1% to $1,695 (down 7.3%).
  • Silver recovered 5.8% to $20.13 (down 13.6%).
  • WTI crude surged $13.15 to $92.64 (up 23%).
  • Gasoline spiked 10.6% (up 23%),
  • Natural Gas slipped 0.3% to $6.75 (up 81%).
  • Copper declined 0.8% (down 24%).
  • Wheat dropped 4.5% (up 14%),
  • Corn added 0.8% (up 15%).
  • Bitcoin increased $200, or 1.0%, this week to $19,570 (down 58%).

Risk markets continue to respond to the war in Ukraine and the supply crisis from the Coronavirus outbreak and lockdowns.

Source: TC, USDA, Farm Progress, Reuters

From The TradersCommunity Research Desk