Wheat Futures Prices Recover Some of Last Week’s Sell off on Steady WASDE Report

Wheat prices closed mostly higher Friday after the USDA’s latest World Agricultural Supply and Demand Estimates report (WASDE). The report had nothing particularly new, USDA’s outlook for wheat includes a trend of increased supplies, steady domestic use, unchanged exports and higher stocks. The move higher of the week of 3% felt a lot like technical buying and position squaring on last week’s 10% tumble on Putin’s promises of opening up shipments.

Wheat

Wheat Futures Highlights

  • Wheat dipped 3.0% on the week (up 39% YTD),
  • July Chicago SRW futures picked up a penny to reach $10.7225,
  • July Kansas City HRW futures rose 10.25 cents to $11.7250,
  • July MGEX spring wheat futures held steady at $12.24.
  • Preliminary volume estimates were for 90,616 CBOT contracts, tracking moderately below Thursday’s final count of 138,326.
  • On Thursday, commodity funds were net buyers of corn (+4,500), soybeans (+10,500) and soymeal (+4,000) contracts but were net sellers of soyoil (-3,000) and CBOT wheat (-3,500)

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 this week retested the Tenkan (orange) and was rejected. Essentially, we are retesting the 8/8 move and high after it spat 8/8, and the minimum target. We did complete a measured 4/8 correction off highs meaning key support as that base, the 50dma and the pennant confluence. From here WEAT support comes it at the pennant base, resistance at Tenkan

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):

USDA WASDE

USDA’s outlook for wheat includes a trend of increased supplies, steady domestic use, unchanged exports and higher stocks.

Supplies firmed 8 million bushels from a month ago, reaching 1.737 billion bushels. In contrast, analysts were expecting to see a modest reduction, with an average trade guess of 1.713 billion bushels. 2022/23 ending stocks also moved 8 million bushels higher to reach 627 million bushels. The agency notes that this is still 4% lower from year-ago levels.

USDA projects the season-average farm price at $10.75 per bushel, which is unchanged from May.

Putin’s Promises

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 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.

India

India will keep its current food export policies in place, according to Piyush Goyal, the Minister for Commerce and Industry, Consumer Affairs and Food and Public Distribution. 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.

France

French farm office FranceAgriMer reported lower soft wheat quality ratings for the sixth consecutive week, with 66% of the crop in good-to-excellent condition through June 6. That’s a 25-point decline since early May as the country has struggled with plenty of hot, dry weather since that time.

“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 ministry reports that the country’s strategic wheat reserves are sufficient to last through the end of this year. Egypt also has vegetable oil reserves that should last six months. The country is a significant importer of both 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 gained 1.2% (up 36.6% y-t-d).
  • Spot Gold rose 1.1% to $1,872 (up 2.3%).
  • Silver slipped 0.2% to $21.89 (down 6.1%).
  • WTI crude gained $1.80 to $120.67 (up 60.4%).
  • Gasoline declined 1.9% (up 87%)
  • Natural Gas rallied 3.8% (up 137%).
  • Copper dropped 4.0% (down 3.8%).
  • Wheat rose 3.0% (up 39%),
  • Corn slipped 0.9% (up 21%).
  • Bitcoin fell $525, or 1.8%, this week to $29,155 (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