Wheat Futures Prices Influenced by Higher EU Poduction Numbers

Wheat prices rallied on Friday with the other grains into the long Memorial Day weekend but still finished down 1% on the week. Weakness came earlier in the week from the EU raising its soft wheat production estimates. Strength came from South Korea purchasing 4.6 million bushels of wheat sourced from the United States, Canada and Australia in a tender that closed on Thursday with one-third sourced from the U.S.

Wheat

Wheat Futures Highlights

  • Wheat dipped 1.0% on the week (up 50% YTD),
  • Wheat prices jumped 0.75% to 1.5% higher Friday on another round of technical buying as traders squared positions ahead of the Memorial Day weekend.
  • Volatility in both directions was frequent throughout the week. July Chicago SRW futures rose 13.75 cents to $11.57, July Kansas City HRW futures added 9 cents to $12.3750, and July MGEX spring wheat futures climbed 18.75 cents to $13.11.
  • Preliminary volume estimates were for 45,529 CBOT contracts, sliding 31% below Thursday’s final count of 66,351.

Wheat Technical Outlook

KnovaWave analyze the WEAT ETF as a surrogate to Wheat given its high beta relationship and more liquid aspect as an investment vehicle.

WEAT broke the large pennant after it spat 8/8, and the minimum target. This completed a measured 4/8 correction off highs meaning key support as that base, the 50dma and the pennant confluence. From here WEAT bounced just short of the previous high just short of +4/8 and failed back under Tenkan to almost 8/8.

WEAT ETF Weekly Chart via KnovaWave

“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 Quality Council Tour of Kansas

The Wheat Quality Council tour of Kansas was held this week. 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.

France

French farm office FranceAgriMer reports that the country’s soft wheat quality ratings have degraded another four points lower, with 69% rated in good-to-excellent condition through May 23. Quality ratings have eroded 20 points lower over the past three weeks. Year-ago results saw 80% of the crop in good-to-excellent condition.

Egypt Wheat Imports

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

Cargoes totaling 11 million bushels of Ukrainian wheat bound for Egypt remain stranded at port, with deliveries originally intended in February and March. Egypt’s supply minister noted that an extension for delivery has been granted amid discussions that the grain might be shipped via rail through Poland instead. On Wednesday there was news the UN is working to get Ukraine’s sea ports exporting grain again.

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 on 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 rose 2.5% (up 35.0% y-t-d).
  • Spot Gold increased 0.4% to $1,854 (up 1.3%).
  • Silver gained 1.6% to $22.11 (down 5.1%).
  • WTI crude added $1.87 to $114.07 (up 53%).
  • Gasoline jumped 4.7% (up 80%)
  • Natural Gas surged 8.0% (up 134%).
  • Copper increased 0.7% (down 4%).
  • Wheat dipped 1.0% (up 50%),
  • Corn slipped 0.2% (up 31%).
  • Bitcoin fell $480, or 1.7%, this week to $28,800 (down 38%).
  • Bitcoin fell $550, or 1.8%, this week to $29,250 (down 37%).

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

From The TradersCommunity Research Desk