Has hard red winter wheat passed the point of peak unpopularity?
… compared with other wheat types, that is.
The discount of Kansas City hard red winter wheat futures to their Chicago soft red winter wheat peer last week touched $0.84 ¾ a bushel, a contract high December basis, and of course a particularly marked reversal of the norm, reflecting the inventory balance.
Usually it is Kansas City hard red winter wheat, as the highest-protein grain, which has the advantage, with its average premium over Chicago at roughly $0.28 a bushel over the past 10 years, on a spot contract basis.
Still, some investors believe it may at least be starting its long haul to reverse its discount, which closed the last session below $0.80 per bushel December basis.
At Commonwealth Bank of Australia, Tobin Gorey said that “2019 season wheat crops seem to be shrinking”.
He highlighted “yield challenges” to North American spring wheat, where harvest has been slowed by rains, besides weakening expectations for Argentine and Australian winter wheat crops.
“These two are especially relevant to resolving the wheat market’s Achilles heel - too much US hard red winter wheat inventory.”
And there is another issue which is rising in profile too – dryness which in parts of the US and Europe is threatening a poor winter wheat sowings season for the 2020 harvest.
“Dry conditions in significant sections of northern hemisphere winter crop areas are helping sentiment,” he said, adding that these “conditions are delaying planting to some degree”, although there “remains time for this to change for the better”.
Nor is dryness the only threat to US winter wheat sowings.
According to Refinitiv, “declining planted area trends, strong competition from other crops, and low expected profitability” mean the 2020 US wheat harvest will fall by 7% year on year to 33.6m tonnes (1.23bn bushels) - albeit down mainly to a drop in yield, with sowings seen dipping by 1%.
Hard red winter wheat output was seen dropping by nearly 14%.
And there is another factor involved too, in terms of the hangover from a delayed autumn crop harvest, meaning land tied up longer than usual with standing crop.
Karl Setzer said that in the wheat market “we are starting to see trade place more interest on how long this fall’s harvest could take.
“This is more on soybeans, as many of the US winter wheat acres are planted after soybeans are harvested.
“Any delay to soybean harvest could cause a delay in wheat planting, and in turn, reduce wheat acres in some areas.”
That said, “we are likely to see more winter wheat planted in regions where fields were unplanted this year,” thanks to the dismal spring sowings season, although this is “mainly in the eastern Corn Belt”, ie soft red winter wheat country.
Kansas City hard red winter wheat futures for December did manage to close their discount a smidgen further to their Chicago soft red winter wheat peers in early deals.
But that was only by falling less hard.
The Kansas City December lot stood down 1.25 cents at $4.08 ½ a bushel as of 10:05 UK time (04:05 Chicago time), while the Chicago soft red contract stood down 1.5 cents at $4.88 a bushel.
Still, Minneapolis spring wheat managed small headway, gaining 0.1% to $5.13 ½ a bushel amid continued worries over the pace of the North American harvest.
In fact, lower prices were the norm in grain markets in early deals, amid some jitters ahead of the US Department of Agriculture’s weekly US export sales report, putting the focus back on a demand source which has not been going so swimmingly.
In fact, for wheat, sales have been relatively strong, and are expected to come in at 300,000-600,000 tonnes for last week, compared with 610,948 tonnes the week before.
For soybeans – for which the US has started 2019-10, this month, with its weakest order backlog since 2008 – sales are expected at 700,000-1.10m tonnes, compared with 1.17m tonnes last time.
For corn, for which the order backlog is the lowest in 17 years, US sales last week are expected at 900,000-1.30m tonnes, compared with 498,090 tonnes last time.
On demand, Mr Setzer noted that “trade has failed to react to the Chinese soybean purchases we have had over the past week.
“While these seem positive, there remain questions over China’s long-term buying interest.”
Besides the dent to China’s demand from African swine fever, “China already has a large volume of purchases on the books from South America.
“Many traders are writing off the recent bookings as a ‘good faith’ move ahead of upcoming trade meetings.”
‘China took a break’
Indeed, there is evidence that China may have held off buying further US soybeans, after their recent 720,000-tonne spree.
Terry Reilly at Futures International noted that US soybean basis “was largely unchanged to higher for US exports at the Gulf, and slightly firmer for barge.
“This may indicate little in way of Chinese buying.”
FOB export prices, and those from Pacific North West docks, “were steady, so traders believe China took a break from the US market”.
Chicago soybean futures for November stood down 0.3% at $8.86 ½ a bushel, although staying just ahead of their 100-day moving average.
Chicago December corn futures eased 0.2% to $3.70 ½ a bushel.
However, in New York cotton futures did manage gains, adding 0.2% to 60.63 cents a pound for December, nearly getting back above their 50-day moving average, as surrendered in the last session.
There are some ideas of improved US cotton export data later, with futures below 60 cents a pound for much of the week in question, before the China-US trade hopes which spurred a price revival.
Not that CBA’s Tobin Gorey was so upbeat, saying that “any weather threats are receding so the market has little fear of late, new threats to crops.
“In that context, seasonal selling is still the obvious flow.”
He added that “the market remains highly sensitive to lurches, forwards and backwards, in sentiment regarding US China trade deals”.