Wheat prices sank 10.5% on the week erasing some of the inflationary pressures, though it leaves wheat still up 22% higher on the year. The futures are down almost 50% from the pandemic break up. On Friday most contracts were down another 1.25% as harvest progress across the Northern Hemisphere continues to be the overriding factor. After the market close Egypt, the world’s top wheat importer and sources a large percentage of its supplies through Ukraine, has strategic reserves of wheat sufficient for 5.7 months.
Wheat Futures Highlights
- Wheat dipped 3.0% on the week (up 39% YTD),
- July Chicago SRW futures faded 13.25 cents to $9.24,
- July Kansas City HRW futures dropped 12 cents to $9.93,
- July MGEX spring wheat futures fell 12.25 cents to $10.6825.
Wheat Technical Outlook
KnovaWave analyze US Wheat futures given its high beta relationship and more liquid aspect as an investment vehicle.
WEAT this month retested and broke the Tenkan (orange). Essentially, we are retesting the 8/8 move and high after it spat 8/8, and the minimum target. We completed a measured 4/8 correction off highs then broke key support at 38% pulling it to the 50% and 50wma confluence. From here Wheat support comes it at that confluence, the break up level at 61.8% and the cloud. Resistance at Kijun and Tenkan.
“Farmers are in a race against the clock to get their crops in the ground this week, with planting of corn, soybeans and wheat well behind their usual pace. Wet and cool temperatures in key parts of the Midwest have delayed farmers’ planting plans, leaving them days to get crops in the ground before they start to lose out on a bigger harvest. If they don’t, some grain traders say that already high prices for agricultural commodities could rise even more… The U.S. Department of Agriculture said 22% of corn was planted, compared with 50% for the previous-five-year average. For soybeans, 12% was planted, compared with the previous-five-year average of 24%, and 27% of spring wheat was in the ground compared with a typical 47%…”May 11 – Wall Street Journal (Patrick Thomas and and Kurk Maltais):
Wheat export sales reached 17.6 million bushels last week, crushing expectations guesses, which ranged from 5.5 million to 14.7 million bushels. Cumulative totals for the young 2022/23 marketing year are trending slightly below last year’s pace so far, with 33.7 million bushels.
Wheat export shipments made it to 12.4 million bushels last week. The Philippines, Thailand, Mexico, Guatemala and Jamaica were the top five destinations.
Do you remember these promises a few weeks ago?
Russian president Vladimir Putin gave a nationally televised interview in Russia last Friday and addressed issues of food security surrounding the Russian war in Ukraine. Putin called reports of Russia not allowing Ukrainian grain exports safe passage through the Black Sea “a bluff” and that “there are no problems with shipping grain out of Ukraine.”
Putin guaranteed safety for Ukrainian grain exports in the Black Sea and Azov Sea, encouraging shipments out of key Ukrainian export hub, Odessa.
Putin also suggested alternative exporting measures for Ukrainian grain, including by railway through countries neighboring Ukraine, including Russia’s key ally Belarus, as well as Romania and Poland, estimating Ukraine could potentially ship 184 million bushels of wheat and 276 million bushels of corn currently locked into storage.
“If someone wants to solve the problem of exporting Ukrainian grain – please, the easiest way is through Belarus. No one is stopping it,” Putin said. “But for this you have to lift sanctions from Belarus.”
Putin’s political goodwill with his country’s farmers is likely beginning to shake. He increased Russian grain export forecasts to 50 million metric tonnes (MMT) ahead of the largest Russian wheat crop expected to be harvested since the fall of the Soviet Union.
“The situation will worsen, because the British and Americans have imposed sanctions on our fertilizers,” Putin said in the interview, noting that higher global fertilizer prices are not correlated with Russia’s ongoing military occupation in Ukraine and calling for Western sanctions against neighboring Belarus to also be lifted. – Farm Progress
“We are now seeing attempts to shift the responsibility for what is happening on the world food market, the emerging problems in this market, onto Russia. This is an attempt, as our people say, to shift these problems from a sick head to a healthy one,” Putin said
Macky Sall, president of the West African country of Senegal, praised Putin’s comments for offering hope to African nations suffering from soaring food costs and growing scarcity.
“President #Putin has expressed to us his willingness to facilitate the export of Ukrainian cereals,” Sall, who is also the chairman of the African Union, wrote on Twitter.
We would suggest take these ramblings with extreme caution and take them for what they are, a propaganda piece. However, the rise and fall of grains prices are impacted with such reactions to his words.
UPDATE: Russian consultancy IKAR increased its estimates for the country’s 2022 wheat production, moving it to 3.197 billion bushels from its mid-May forecast of 3.123 billion bushels. It also raised its expectations for Russian wheat exports to 1.506 billion bushels.
Wheat Quality Council Tour of Kansas
The Wheat Quality Council tour of Kansas was held last month. The final state-wide average yield came in at 39.7 bushels per acre versus USDA’s May 12th estimation of 39.0 bpa and the most recent 5-year average at 47.4 bpa. While the yield came in higher than the latest forecasts, total production came in 10 million bushels below USDA’s figures due to abandonment.
The tour sees Kansas harvested acres at 88.8 percent of those planted versus the USDA’s forecast of 93.9 percent the 4-year average of 94.9 percent. With Kansas condition ratings at 54 percent Poor-to-Very Poor, the 39.7 bpa was higher than I was expecting.
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.
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.
Egypt has contracted to buy 180,000 tonnes of wheat from India, Supply Minister Aly Moselhy said in a news conference on Sunday. Shipment will happen once the cargo “reaches the ports” in India, Moselhy added.
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 likely shipped a record-setting 367 million bushels of wheat this year, with much of that volume recorded following Russia’s invasion in Ukraine. At the moment, the country is not expected to restrict rice exports.
FranceAgriMer once again lowered its quality ratings for the country’s soft-wheat crop, with 64% now rated in good-to-excellent condition (down a point from last week). Harvest is beginning a bit earlier than normal, with 2% complete through June 20.
“Wheat output in the European Union is expected to fall this year, according to a closely followed survey, threatening to crimp supply from one of the world’s biggest growers at a time when the war in Ukraine has bottled up exports from that country and from Russia… Strategie Grains, an agriculture consulting firm, is now forecasting a more than 5% fall in French wheat production… It cited dry conditions across Europe in May.” June 9 – Wall Street Journal (Yusuf Khan):
Egypt Wheat Imports
Egypt is the world’s top wheat importer and sources a large percentage of its supplies through Ukraine.
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.
South Korea Imports
South Korea purchased 4.6 million bushels of wheat sourced from the United States, Canada and Australia in a tender that closed last Thursday, approximately one-third of the total was sourced from the U.S. The grain is for shipment starting in July.
Commodity Round Up
- Bloomberg Commodities Index fell 4.3% (up 22.3% y-t-d).
- Spot Gold slipped 0.7% to $1,827 (unchanged).
- Silver declined 2.3% to $21.16 (down 9.2%).
- WTI crude fell $1.94 to $107.62 (up 43%).
- Gasoline rose 2.4% (up 74%),
- Natural Gas sank 10.4% (up 67%).
- Copper slumped 7.1% (down 16%).
- Wheat sank 10.5% (up 22%),
- Corn dropped 7.8% (up 14%).
- Bitcoin recovered $750, or 3.6%, this week to $21.277 (down 54%).
Risk markets continue to respond to the war in Ukraine and the supply crisis from the Coronavirus outbreak and lockdowns.
From The TradersCommunity Research Desk