Wheat Futures Prices Tumbled 10% on The Week After Putin says Opening up Black Sea

Wheat prices fell hard on Friday after a Putin interview promising the shipping of Wheat exports, he blamed Ukraine, the US and the UK. He also never mentioned the effect of the war and praised Belarussia as a solution. While there is obvious trepidation in the reality the headlines triggered algorithm selling. Chicago and Kansas City futures ended $0.17-$0.20/bushel lower. Planting shortfalls in North Dakota and Minnesota appeared to put a base in the selling.

Wheat

Wheat Futures Highlights

  • Wheat dipped 10.2% on the week (up 50% YTD),
  • Chicago and Kansas City wheat futures ended $0.17-$0.20/bushel lower.
  • Minneapolis wheat lost $0.05-$0.08/bushel Friday.
  • Cash prices for hard red wheat in the Southern Plains began to narrow as harvest activity ramped up Friday.
  • With 72% of the U.S. winter wheat crop headed as of last Sunday, attention is increasingly turning to harvest of hard red winter wheat crops in the Southern Plains.
  • No change in cash prices were reported at U.S. Gulf export terminals.

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 8/8 and failed back under Tenkan to almost 5/8.

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):

Putin’s Promises

Russian president Vladimir Putin gave a nationally televised interview in Russia 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.

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 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 was unchanged (up 34.9% y-t-d).
  • Spot Gold was little changed at $1,851 (up 1.2%).
  • Silver declined 0.8% to $21.93 (down 5.9%).
  • WTI crude jumped $3.80 to $118.87 (up 58%).
  • Gasoline surged 5.9% (up 91%),
  • Natural Gas declined 2.3% (up 129%).
  • Copper jumped 3.8% (unchanged).
  • Wheat dropped 10.2% (up 50%),
  • Corn fell 6.5% (up 23%).
  • Bitcoin gained $910, or 3.2%, this week to $29,680 (down 36%).

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