February 20: Why Wheat Prices Slumped on Tuesday

In Chicago, grain prices were mixed. Soybean prices ticked higher thanks to ongoing dryness across Argentina. Meanwhile, wheat prices slipped thanks to another round of technical selling.

Here’s our daily recap from the Chicago Board of Trade.

Wheat Prices Dip on Technical Selling 

Technical selling hit wheat prices Tuesday as investors eyed a lukewarm export update.

In Chicago, wheat prices dipped 8.5 cents to close the day a tick above $4.49 per bushel.

In Kansas City, the March contract fell 7.25 cents to close just above $4.71.

Spring wheat prices in Minneapolis also showed gains.

The MGEX contract added 2.75 cents to close at $6.0350.

The USDA reported weekly export inspections of 422,298 MT. That figure was off more than 15% from the previous week and 26.02% lower than the same period last year.

Egypt has issued a tender for up to 4.4 million metric tonnes of wheat. The U.S. and Canada are in the running, as origins can include those two countries in addition to Russia, Australia, and Argentina.

Russia might actually lose out on this one.

FOB export wheat prices from Russia are on the rise, which is aiding the competitiveness of U.S. wheat producers. This is a topic that we explored in January when other analysts were projecting exports from both countries.

Further weakness in the U.S. dollar and strength for the Russian Ruble could help bolster U.S. exports in the future. The other major factor impacting Russian wheat today is supply.

Russian logistics operator RusAgroTrans reported today that there is a shortage of high-quality milling wheat at a time that demand remains high. [1] That has driven up wheat prices in the Black Sea.

Soybean Prices Rise on Argentina Woes

Once again, Argentina is dominating the headlines.

Weather in Brazil also helped support prices Tuesday. Futures contracts ticked to a seven-month high in Chicago.

Drought across Argentina is really hammering production expectations. Local analysts have been cutting their production forecasts well below the numbers from the USDA. As we’ve noted in the past, the USDA is notoriously conservative in its approach to lowering production numbers abroad. We’ll be keeping a close eye on the March WASDE report in a few weeks, although I’m expecting any significant cut to come in the April report after the USDA has had enough time to weigh the full impact of the drought.

Next, have a look at Brazil’s soybean numbers.

Some analysts are projecting that Brazil will actually top last year’s record crop. Consultancy Safras & Mercado said today that Brazil’s 2017/18 soybean crop will hit 115.6 million tonnes.

That would be a new record, topping last year’s 114.2 million tones by 1.2%.

The March contract gained 5 cents to close at $10.265 per bushel. The May contract jumped to $10.375 after a 5-cent increase.

Concerns about the South American harvest overshadowed this week’s export numbers. The USDA said that inspections came in at a little more than 960,000 MT.

That was a 29% drop from the previous week.

Even though China is considering restrictions on U.S. soybeans, the country was overwhelmingly the largest buyer of U.S. beans last week. China represented 62% of last week’s sales.

I am not convinced that China is going to shut down U.S. exports. The political and financial costs associated with such a move would be significant for the nation’s growing livestock industry.

Even though prices would likely face a short-term slump, I would expect that the U.S. Soybean Export Council has a contingency plan. If China chooses to purchase more soybeans from Brazil or rapeseed from Europe, we will see new markets emerge for U.S. producers so long as global demand remains robust.

With that in mind, farmers need to be forward-thinking about what they grow.

Corn Prices Dip on Technical Selling

March corn prices dipped 2 cents to close the day at $3.655. The May contract shed 1.25 cents and closed a tick under $3.74 per bushel.

The USDA reported that total export inspections came in at 938,099 MT.

That figure was almost an 11% jump from the previous week.  in corn shipments during the week of 2/15. That was up 10.87% from the previous week but still lags the same time last year by 20.64%. Japan was once again the largest buyer of U.S. corn last week.

Stock Market News In New York

In New York, the Dow Jones shed about 254 points thanks to a huge decline in Wal-Mart stock. Shares of WMT fell more than 10% Tuesday, the worst single day for the retailer’s stock since 1988.

Meanwhile, oil prices were mixed after the American Petroleum Institute reported a surprise decline in U.S. inventory levels. While WTI pushed higher, Brent crude was falling.

The big news in the oil market is that OPEC is moving closer and closer to striking a long-term partnership with Russia. The world’s largest energy cartel has been engulfed in a production battle with American companies. OPEC’s 14 members and 10 non-members like Russia have been slashing excessive production to help support crude prices.

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About the Author
Garrett Baldwin

Garrett Baldwin is a content strategist and editor at FarmLead. He covers the global grain markets and public policy issues related to the agricultural industry. He is a graduate of the Medill School of Journalism at Northwestern University. He also holds a Master’s Degree in Economic Policy from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University, and an MBA in Finance from Indiana University.

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