Markets unPACKed: Wheat and this Heat!

Wheat and this Heat!

 

The grain complex has been quite price-sensitive this week. With any hint of rain in the forecast in the Midwest, the grains trade lower by 10-25 cents. The weather models keep flipping. Last week, they showed hot and dry, resulting in tough growing conditions. This week, the models are projecting 3-6 inches of rain with Iowa in the center of the storm. What is the reality? Somewhere in-between? Three to six inches of rain will eradicate any moisture concerns and the crop is good to grow. One to two inches will help but will not solve the long-term moisture deficit we have.

One area of focus for us is wheat this week. Kansas City HRW Wheat is trading at 79% of corn. This serves as a strong incentive for cattle feeders to lock in wheat for summer feed needs over corn. Swine nutritionists are also blasting the feed community that wheat is a decent alternative for feed to avoid higher corn prices. Historically, corn and sorghum are less expensive grain sources in the United States. But this rally has seen the inverse and with America back to pre-pandemic life, ethanol is driving corn demand again as well.

As we head into July harvest for winter wheat, the global supply of wheat is looking good, with the EU harvest expecting 137.5M tons, Russia with 86M tons, U.S. 51.7M tons, and Ukraine 29.5M tons, all up from last year. Canada is expected to yield less than last year, down 3M tons to 32M tons, according to the USDA.

Ukraine reported excellent conditions, and soft-wheat conditions in France are the best since 2015. In addition, money managers have turned bearish for the first time in two months, according to Bloomberg.

Yet, we have eight-year highs in wheat, and a gloomy picture for hard red spring (HRS) wheat as drought conditions have been terrible in the Dakotas. In North Dakota, the Progressive Farmer recounted many farmers stating this was the first year in the 30-60 years of their careers they are not planting wheat. From our own clients in the area, it was an abysmal spring, only barely saved by two inches of rain last week.

While it is believed that this wheat harvest will flood the market with supply and calm global food prices as we experience global inflation, importers may not be quick to buy unless we see a serious correction. Egypt, a top importer, has cancelled its third tender this year and Saudi Arabia has booked less wheat for July and August.

Even if the crop looks good globally, drought issues in the U.S. for corn and beans will certainly keep wheat prices pumped as well, let alone the HRS wheat mess we have in North Dakota.

 

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