Breaking down the various factors plaguing the market
As with the rest of agriculture/grains complex, there is little positive to hold onto for wheat in terms of price action, as the market continues to make fresh lows.
It’s tough sledding for bulls for several reasons:
- A better-than-expected hard red winter (HRW) wheat crop.
- Little concern for hard red spring (HRS) wheat crop.
- Soft red winter (SRW) wheat crop fighting quality issues but not bushels.
- Soft white winter (SWW) wheat having a huge crop to start.
- Corn market selling off.
Additionally, demand has been relatively static, as export remains right on pace to meet current U.S. Department of Agriculture (USDA) marks, though it has been white wheat and spring varieties that have been doing the heavy lifting as both HRW and SRW so far are trailing on a sales pace.
Domestically, we have seen the mills stay pretty hand-to-mouth, with only few processors looking to book out forward.
Areas to Watch
A little more concerning would be a repeat of last year, where local commercial elevators were forced to compete with export terminals into the mill market. Although I think chances are low on this, it’s something to watch.
The world is also watching the recent Egypt tender that is unusually large, as the nation looks to book quite a bit of business out forward.
As of mid-August, no values have been published but most traders are expecting stronger values with a mix of European Union/Russian origin.
Looking forward a bit, with planting season just around the corner, the forecast has brought some much-needed rains into the Central Plains and heart of the HRW region. If this wetter trend continues, it might be tough to see acres materially drop all that much from the 33.8 million bushels we saw in 2023-24.
The wheat complex will continue to be pushed around by MATIF wheat and corn markets. With little story or concern for U.S. supplies, it will be tough to mount product rally.
Continue to watch corn, as the wheat-corn relationship is heavier handed, and that spread is usually happy between $1.20-$1.50.
From a geopolitical perspective, the Black Sea conflict or risk of a broader Middle East conflict remains on the back burner. It could flare up, but a more direct influence to markets will be the performance of the U.S. dollar through possible U.S. Federal Reserve rate cuts, economic headlines, and the upcoming U.S. presidential election.
Theodore Nelson is a risk management consultant with StoneX Group Inc., Kansas City, MO; 800-255-6381.