Wheat Futures Prices Sell Off Continued as Consumption Collapses and First New Ukrainian Shipments

Wheat futures fell on Wednesday to a six-month low but gained traction and rose sharply toward the end of the week but still closed down 4% for the week. The selling came as newly harvested supplies met the current global demand. Global wheat consumption is on track for its biggest annual decline in decades as record inflation has forced consumers and companies to use less and replace the grain with cheaper alternatives. Wheat felt the pressure from the first grain vessel to leave a Ukrainian sea port since the start of the war was inspected in Turkey on Wednesday.

Wheat

The price direction will depend on how much wheat and corn actually comes out of Ukraine in the coming weeks.

The USDA’s last month 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

  • Wheat fell this week.
  • September Chicago SRW futures dropped 6 cents to $7.7650,
  • September Kansas City HRW futures fell 11 cents to $8.4925,
  • September MGEX spring wheat futures inched 0.75 cents higher to $8.95.
  • Preliminary volume estimates were for 102,198 CBOT contracts, firming 12% above Thursday’s final count of 91,577.
  • On Thursday, commodity funds were net buyers of all major grain contracts, including corn (+5,000), soybeans (+5,000), soymeal (+3,000), soyoil (+1,000) and CBOT wheat (+500).

Wheat Technical Outlook

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

Wheat held after it threatened its weekly cloud and 0/8 which held. Last fortnight it spat the 50wma. In a chopper week it closed under 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

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.

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.

US Wheat Harvest Report

  • The Wheat Quality Council wrapped up their spring wheat tour and estimated the North Dakota spring wheat crop at the second highest on record.

Wheat Exporters

USA

The fall corn export outlook is by no means certain. The Hard Red Winter Wheat Belt should see 1/10 to ¾” during the period over 30% of the region. Temperatures are forecast to be above normal. Canadian Prairie rainfall for the period will vary between 1/3rd to 2” over 65% of the region with a few amounts greater. Temperatures are forecast to be near to above normal.

Wheat exports rose 19% from last week’s volumes to 10.5 million bushels through the week ending June 30. Wheat export sales reached 17.6 million bushels last week, crushing expectations 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.

Western hemisphere and Asian buyers continued to be the top purchasers of new U.S. wheat export sales last week.

Increases to weekly hard red winter and hard red spring shipments were the key drivers of higher wheat exports in USDA’s latest Export Sales report. Soft red wheat export volumes through the week ending June 30 were fractionally higher also and will likely trend higher in the weeks to come as harvest progress wraps up in the Midwest and Eastern U.S.

Russia

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.

“Of course, we will supply our [domestic] market in full, there will be no problem with that. But if the planned volumes are not achieved, we will have to revise our plans to export 50 million [metric] tons,” according to agriculture minister Dmitry Patrushev.

Ukraine

Ukrainian President Volodymyr Zelenskiy made a rare trip outside of Kyiv earlier Frida, visiting a port near the southern city of Odesa. Black Sea ports are still waiting to move grain after the United Nations brokered a deal earlier this week to get container ships moving again. Reports show that 17 ships are currently docked at Ukrainian ports, holding an estimated 600,000 metric tons of cargo.

Meantime, a Turkish grains trading company is denying allegations that flour and barley in a ship docked in Lebanon was stolen from Ukraine. A company official said Lebanese customs were supplied with documentation showing the grain was sourced from Russia but declined to share these documents with Reuters.

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

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

The BA Grain Exchange reduced its estimate of Argentine wheat area again, by 100 K hectares to 6.1 million and are now down ½ million from a late May forecast.

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.

Pakistan

Pakistan has received multiple offers in its international tender to buy 18.4 million bushels of milling wheat, which closed earlier today. Additional details about the sale were not immediately available.

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.

Philippines

The Philippines likely passed on all offers for its tender to purchase 5.5 million bushels of wheat., with prices regarded as too high. One trader suggested the country may wait to see if an uptick in Ukrainian exports will help prices fall. Ukraine’s total grain exports are down nearly 49% so far in the young 2022/23 marketing year.COT on Commodities

COT on commodities covering the week to July 12 saw selling pressure from hedge fund begin to ease. The net long dropped to 900k lots, lowest since June 2020 but the 52k reduction was well below the 190k average seen during the previous four weeks.

Specs turned net buyers of crudeoil, copper and sugar with selling seen in natgas gold soybeans corn wheat and coffee. The gross position (long & short) was cut by 177k reflecting a high degree of uncertainty and vacations lowering exposures

Image
via Ole S Hansen @Ole_S_Hansen

Commodity Round Up

  • The Bloomberg Commodities Index dropped 3.3% (up 18.8% y-t-d).
  • Spot Gold increased 0.5% to $1,776 (down 2.9%).
  • Silver fell 2.3% to $19.90 (down 14.6%).
  • WTI crude sank $9.61 to $89.01 (up 18%).
  • Gasoline slumped 8.3% (up 28%),
  • Natural Gas declined 2.0% to $8.06 (up 116%).
  • Copper slipped 0.6% (down 20%).
  • Wheat sank 4.0% (up 1%),
  • Corn declined 1.6% (up 3%).
  • Bitcoin declined $520, or 2.2%, this week to $23,260 (down 49.8%).

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