Wheat futures ended the week firm but gave back most of the gain on Friday to close up 2.01% for the week. Ongoing drought in the United States and Argentina is providing support. Concerns remain for the latest lower production estimates in Europe together with ongoing geopolitical unrest in the Black Sea region with Putin threatening safe passage of Ukrainian ships from its Black Sea ports. Pakistan is on the market for 300k MT of wheat after crop damages due to devastating floods in Pakistan are expected to be more than $1.5 billion.
The price direction will depend on how much wheat and corn actually comes out of Ukraine in the coming weeks. The deal has been recently criticized by Vladimir Putin, who wants to see amendments added to it before it is extended in November.
The USDA’s last months 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
- December Chicago SRW futures lost 33.75 cents to $8.77,
- December Kansas City HRW futures fell 29 cents to $9.5050
- December MGEX spring wheat futures dropped 23.25 cents to $9.5450.
- Preliminary volume estimates were for 80,859 CBOT contracts, which was moderately below Thursday’s final count of 97,565.
Wheat Technical Outlook
KnovaWave analyze US Wheat futures given its high beta relationship and more liquid aspect as an investment vehicle.
Wheat bounced between the 50 and 61.8% Fibs. Drawn higher by the flat weekly cloud and supported by 0/8 which held. It closed over the 50wma after holding 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.
USDA September WASDE
- USDA expects farmers to harvest 1.783 bb of wheat in 2022-23.
- Production is unchanged from last month as expected.
- USDA will update its wheat production forecasts in its Small Grains Summary, which will be released Sept. 30.
- The agency made no changes to demand, leaving ending stocks unchanged at 610 mb.
- The national average farm gate price was lowered by a quarter to $9.00 per bushel.
WAOB Wheat Stocks
The world balance sheet saw some shifting around, with smaller US stocks. Carryout was down just 0.18 MMT to 267.34 MMT. Russian wheat production was up 6.5 MMT to 88 MMT, which took stocks 2.75 MMT on larger exports and use. EU production was down 2 MMT, with Ukrainian stocks down 1 MMT.
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.
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.
Global Wheat Output
The International Grains Council raised global wheat output by 8 MMT to 778. That is still down from 781 MMT in 21/22. Wheat carryout stocks were upped by 3 to 275 MMT – still under 280 last season.
USDA export estimates for 2022/23 improved 25 million bushels to 825 million after winter wheat prices are seen as more competitive after falling from multiyear highs earlier this spring. (The season-average farm price tumbled $1.25 from a month ago to $9.25 per bushel.)
Saskatchewan reported wheat harvest was 42% finished as of 9/8, compared to the 40% average pace. Yields were yields were mostly near 43 bpa.
Canada’s StatsCan reported 34.57 MMT for the 2022 crop’s expected production. That is slightly above the 34 MMT average trade guess and is up from 22.3 MMT last year (itself revised up from 21.6 MMT). That comes via a 25.56 MMT spring wheat crop, the trade was looking for 25.4, and a 6.47 MMT durum crop, compared to the trade average guess of 6 MMT flat.
IKAR raised their forecast for Russia’s crop 2 MMT to 97 MMT. Last week 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.
Russia’s agriculture ministry reported Friday that the country is prepared to export as much as 30 million metric tons of grain (presumably most of which will be wheat, along with some corn and barley) during the second half of 2022.
“This will support countries in need and help stabilize the global food situation,” according to a statement the agriculture ministry issued. Russia is the world’s No. 1 wheat exporter.
Ukraine continues to face large production and export challenges amid the ongoing Russian invasion. Meanwhile recent rains have left soil moistures at their best levels in a decade, according to Ukraine’s state weather forecasting center. That should allow for a strong start to the 2022/23 season for winter crops.
Ukraine’s Ag Ministry reported last month harvest reached 99% complete, with 19.5 MMT counted. That is down from 33 MMT last year. Ukraine’s fall harvest is around 60% complete, according to a statement from its agriculture ministry today. Wheat accounts for the lion’s share so far, with 705.5 million bushels. Barley has made the second-most progress, and Ukraine is only at the very beginning of its 2022 corn harvest.
Ukraine’s Agri Council lobby group expect to see ~50% reductions to winter grain planted area. Last year’s area included 8.4m HA (~20.8m acres) with 6.2m HA (~15.35m acres) of wheat.
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’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.
The BA Grain Exchange reported that recent frosts in Argentina have caused damage to the country’s 2022/23 wheat crop. Last season, Argentina’s wheat production reached 823 million bushels, but planted acres are down around 9% from a year ago
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 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.
Saudi Arabia issued an international tender to purchase 19.7 million bushels of wheat from optional origins, which is in alignment with its plan to maintain strategic stocks and fulfill domestic milling needs. The grain is for delivery between November and February.
Crop damages due to devastating floods in Pakistan are expected to be more than $1.5 billion. “According to the preliminary estimates, cotton, rice, maize, pulses, potatoes, tomatoes, sugarcane, wheat, chilies, tobacco, oil seeds, millets and garlic were among the vegetables damaged because of the floods,” according to a report that assessed the damages.
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.
Japan will import nearly 500,000 bushels of feed-quality wheat for livestock use following a simultaneous buy-and-sell auction that was held earlier today. The country’s agriculture ministry had initially sought up to 2.6 million bushels of feed wheat and 1.8 million bushels of feed barley in today’s SBS auction. The grain is for arrival in Japan in late January.
The Philippines purchased 1.7 million bushels of animal feed wheat, likely sourced from Australia, in an international tender that closed on Thursday. The grain is for shipment in January.
COT on Commodities
- Weekly Commitment of Traders data had CBT wheat specs reducing their net short through the week that ended 9/20. The short covering left the group 4,683 contracts less net short at 15,703 contracts.
- In KC wheat, the funds were 2,067 contracts more net long to 19,059 contracts.
- CFTC data had spring wheat spec traders at 2,369 contracts net long after net new buying flipped the group’s net position.
Commodity Round Up
- The Bloomberg Commodities Index dropped 3.7% (up 13.3% y-t-d).
- Spot Gold declined 1.9% to $1,644 (down 10.1%).
- Silver slumped 3.7% to $18.87 (down 19.0%).
- WTI crude sank $6.37 to $78.74 (up 5%).
- Gasoline slipped 1.4% (up 7%),
- Natural Gas sank 12.1% to $6.83 (up 83%).
- Copper dropped 4.9% (down 25%).
- Wheat gained 2.4% (up 14%),
- Corn was little changed (up 14%).
- Bitcoin lost $650, or 3.3%, this week to $19,000 (down 59%).
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