Current Sales Position:
We are 80% sold on 2017/18 old crop winter wheat.
We are 30% sold on 2018/19 new crop winter wheat.
Winter wheat prices popped in Chicago and Kansas City as traders eyed ongoing weather challenges in Europe and American exports.
Front-month and December 2018 contracts added at least 14.5 cents thanks to concerns about the European and Russian wheat crop. Before we dive into the supply and demand factors impacting prices, let’s take a look at wheat contracts in Chicago and their weekly performances.
Chicago Soft Red Winter wheat prices:
- Sep ‘18: +2.8% or 14.4¢ to $5.304 USD / bushel
- Dec ‘18: +3.2% or 17¢ to $5.50 USD / bushel
- Mar ‘19: +3.2% or 17.4¢ to $5.66 USD / bushel
- May ‘19: +2.7% or 14.8¢ to $5.722 USD / bushel
Kansas City Hard Red Winter wheat prices:
- Sep ‘18: +4.7% or 24¢ to $5.324 USD / bushel
- Dec ‘18: +4.8% or 25.8¢ to $5.594 USD / bushel
- Mar ‘19: +4.6% or 25.6¢ to $5.77 USD / bushel
- May ‘19: +4.2% or 23.4¢ to $5.84 USD / bushel
Managed Money Moves
In Chicago, managed money pushed its long position higher for the week ending July 24. Hedge funds added 6,731 contracts to bring the total position to 23,942 contracts.
In Kansas City, the story was also one of bullish sentiment. Managed money added another 4,130 contracts for the week ending July 24 (or 23%).
Funds are now net long 22,058 contracts for Kansas City wheat.
Europe Heats Up the Wheat Markets
Earlier this week, the International Grain Council cut its 2018/19 world wheat production estimate down to 721 MMT. The new number represents a 16 MMT cut thanks to falling expectations for production in the European Union and Russia.
The IGC put total production this week for Europe at 139.9 MMT. That figure is down from its previous estimate of 147.3 MMT. That would be lowest output in six years.
Comparably, ODA Group is even more pessimistic, put their estimate for the European soft wheat crop only at just 124.9MMT.
Europe’s wheat harvest is looking very parched, particularly in the northern regions. This week, a variety of reports hinted that a number of farmers could face crop failure and bankruptcy as hot temperatures continue to pound the continent.
Several Eastern European countries like Latvia and Lithuania have declared states of emergency. Swedish fields have seen just 12% of normal rainfall. Wildfires have spread across Greece.
It’s so hot in Europe that wildfires are actually happening in Scandinavian areas of the Arctic Circle.
Here is a breakdown of major developments across Europe.
- France: The EU’s top wheat grower has seen estimates fall sharply in recent weeks. Consultancy Agritel said last Friday that the French soft wheat crop, excluding durum, will come in at 34.2 MMT. That figure is 6% below last year’s crop size.
- Germany: The second largest wheat producer in the EU is expected to see a big decline. According to the DBV farming association, Germany’s winter wheat harvest will slump by 15% year-over-year 20.5 MMT. Strategie Grains projects that the German soft wheat crop will come in at 20.7 MMT. That figure is off 2.1 MMT from the early July estimate of 22.8 MMT.
- Poland: Wheat output may fall 10% from 2017 to about 10 MMT, according to the latest forecast from Sparks Polska.
- U.K.: In Britain, the wheat harvest is underway, but a smaller crop is now anticipated. We have seen estimates fall under 14 MMT. That figure is off from the 14.8 MMT harvested last year. The figure is also the lowest wheat output since 2013.
- Ukraine: UkrAgroConsult slashed its 2018/19 crop forecast on Tuesday. The ongoing drought across the country fueled a downward revision of 3.1% to 24.7 MMT. The agency also cut its forecast for Ukrainian wheat exports from 16 MMT to 15.5 MMT.
Argentina’s Wheat Output Bounces Back
While crop conditions are looking ugly in Europe, conditions in South America are making headlines.
Last week, Argentine farmers completed their planting, and the country looks like it will harvest its largest crop in history. The country seeded 15.1 million acres, up 7% year-over-year according to the Rosario Board of Trade. Solid moisture levels have provided a healthy crop rated 75% good-to-excellent (G/E).
Analysts now project that the country’s total wheat crop will come in at a record 20 MMT. This would easily top the current record of 18.2 MMT harvested in 2016/17.
This is a critical time for Argentina’s farmers who have been ravaged by a long drought.
Wheat Exports Dip, But Still Looking Stronger
On Thursday, the USDA released its weekly update on exports. The agency announced that net wheat sales for new crop came in at just under 386,000 MT. That figure was a 29% jump from the previous week.
However, the agency also said that total exports came in at 409,100 MT. That was a 6% decline from the previous week, but 12% higher than the four-week average. The chart below offers a glimpse of what’s happening with U.S. wheat exports.
The top five destinations for U.S. wheat exports were Japan (80,300 MT), Mexico (66,300 MT), South Korea (60,300 MT), Iraq (52,300 MT), and the Philippines (45,000 MT).
Crop Progress Update
As the U.S. harvest picks up, let’s take a look at what’s happening in the fields. This week, the USDA said that 80% of the winter wheat crop has been harvested. That is 1 point ahead of the 5-year average.
Going into tomorrow’s Crop Progress report, the 5-year average for winter wheat harvested is 85%.
Keeping an Eye on the Weather
Over the next two weeks, precipitation is expected to pick up in Colorado, Nebraska, and Oklahoma. But it’s still bone dry in most of Texas and other parts of the Southwest. Meanwhile, drier than usual conditions will also plague North Dakota.
It will continue to be hot in the Southwest, as temperatures west of Colorado will be hotter than usual. But cooler temperatures are due for the Midwest, particularly southern South Dakota and into Minnesota.
Where Wheat Prices Go from Here
The pop in winter wheat prices this week were a welcome moment in this long summer run.
Overall, Wednesday’s big jump was largely tied to concerns about the spring wheat crop. But there is little doubt that weather events in the Southwestern portion of the United States are complementing dryness across Europe. The market has started to price this in but the question is how far does this go?
Looking ahead, we are starting to see potential opportunities to price remaining crop. But we want to ensure that we are squeezing every last drop out of the weather market before we consider walking away from any profits.
Have a great week!
– Brennan, Garrett, and Adrian
July 22 – Winter Wheat Weekly GrainCents Digest
July 18 – Australian Wheat Crop Gets a Downgrade
July 18 – Less Ukrainian Wheat in 2018/19
July 18 – Rainy Spring Boosts Spain’s Winter Wheat Yield
July 15 – Winter Wheat Weekly GrainCents Digest
July 12 – July WASDE Shows More Winter Wheat Production
July 8 – Winter Wheat Prices Outlook for the Second Half of 2018
July 1 – Winter Wheat Weekly GrainCents Digest
June 29 – US Total Wheat Acres Up 4%, Stocks Down 7% from 2017
June 29 – StatsCan Reports 24.7 Million Acres of Wheat in 2018/19