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Morning markets: Will hard winter wheat lose its battle to keep a premium over corn?


Hard red winter wheat isn’t going down without a fight.


Going, without some kicking and screaming, into a discount against corn, that it.


Kansas City hard red winter wheat futures for May have in all of the last four sessions been priced as less valuable than corn, only to scramble back into positive territory by the close.


… if with somewhat decreasing alacrity. The Kansas City May contract ended the last session at $5.54 ¼ a bushel, only $0.01 a bushel above its corn peer.


That is, with the premium holding only the last vestiges of the $1.23 a bushel it ended 2020 at, May basis.


‘Wheat feels cheap’

This looks like a bid to find more demand for US wheat, of which hard red winter is the main class produced, with extra inclusion into feed rations a likely target.


In fact, wheat, and hard red winter wheat in particular, with a higher protein count than corn, is typically viewed as more nutritious in feed, gramme for gramme.


However, the high-profile US quarterly grain stocks report a week ago only highlighted the tightness in US corn supplies, which came in below market expectations¸ versus those of wheat, which exceeded market forecasts.


Prices suggest that “niche, traditional business and find a way into the feed ration are the plan going forward” for wheat, said Benson Quinn Commodities.


“Hard red winter wheat has become more than a viable substitute for corn in the domestic feed ration”, the broker said, if adding that it “would be surprised if Kansas City futures want to trade a discount to corn for an extended period of time.


“To me wheat feels cheap.”


Gasc tender

Still, the question is with a grain such as wheat, for which there are many rival export origins to the US, “whether or not global values can find some footing”.


The latest tender by Gasc, which late on Tuesday revealed it had bought 345,000 tonnes of Russian and Ukrainian wheat for delivery in August – ie the Egyptian grain authority’s first tender for 2021-22 – didn’t do many favours on that score.


There were a plentiful 19 offers to the tender (and those all from Romania, Russia and Ukraine, with the likes of France not even bothering to try to compete with bountiful Black Sea supplies post-harvest).


And seven of these cargos offered were of Russian wheat, five of which Gasc bought – disappointing some bulls who had hoped that Russia’s export tax regime would at least bring uncertainty over the origin, and at least render it uncompetitive.


In fact, the price Gasc paid, at $252.09 a tonne including freight, was $45.31 a tonne cheaper than the previous tender, held in March for delivery this month.


Excluding freight, the wheat was nearly $48 a tonne cheaper this time.


Wheat vs corn

This when another potential prop for hard red winter wheat prices, worries over Plains dryness, has crumbled too, with the improvements rendered by recent rains confirmed by USDA crop ratings released on Monday.


This leaves corn itself as a key hope for hard red winter wheat bulls. If prices of corn itself gain, then wheat values will not need declines to remain competitive.


Corn futures for May did manage early headway, adding 0.6% to $5.57 ½ a bushel as of 11:00 UK time (05:00 Chicago time).


And Kansas City hard red winter wheat futures for May were up 0.7% to $5.59 ½ a bushel.


This actually allowed them to cut their discount to Chicago soft red winter wheat, which managed only a static performance, at $6.15 ½ a bushel. (Historically, hard red winter wheat, in having higher protein, as usually held the premium).


Wasde ahead

Corn’s price headway, particularly evident in old crop contracts (as in the last session), was helped by ideas that Friday’s USDA Wasde report may see a further cut to the forecast for US corn stocks at the close of 2020-21 (in August).


This after last week’s quarterly inventory briefing showed the lower-than-forecast supply number as of March 1.


Investors expect the USDA, which currently pegs end-season stocks at 1.502bn bushels, to cut that number to an even thinner 1.379bn bushels on Friday, according to a Bloomberg survey.


‘Very unusual’

Worries over Brazilian origin are also providing some support, given the late sowing of the safrinha crop, which provides the bulk of the country’s export supplies. Late planting raises the chance of the crop falling victim to dry weather which often kicks in later in the growing season.


As Michael Cordonnier at Soybean and Corn Advisor said, noting that safrinha corn is now at last 100% planted, “It is very unusual to even be talking about safrinha corn planting during the first week of April.


“In a more normal year, the vast majority of the corn is usually planted by the end of February with a small percentage of the crop planted in early March.


“Dry weather going forward is the biggest potential problem for the safrinha corn with the main area of concern being the states of Mato Grosso do Sul, Parana, and Sao Paulo.”


‘Could be record high’

Chicago soybean futures for May, meanwhile, edged 0.2% higher to $14.21 ½ a bushel.


The Wasde is expected to make only a small cut, of 2m bushels to 118m bushels, in the forecast for US soybean stocks at the close of 2020-21.


Supplies as of March 1 actually came in a touch ahead of market expectations, although there appears no shortage of takers.


Steve Freed at ADM Investor Services said that forthcoming data from industry group Nopa on the US March soybean crush “could be record high”, adding that “this continues to increase demand for cash soybeans”.


This un turn when “some feel farmer may be not selling during planting season. Spreads may need to rally to move elevator supplies.”


New crop vs old

Still, cotton proved a better performer again, adding 1.4% to 80.31 cents a pound in New York for May delivery.


Some of this is down to old-crop concerns, with US supplies tight as the season gets into its final chapter.


Investors expect the USDA in the Wasde to cut to 4.11m bales, from 4.20m bales, its forecast for US cotton inventories at the close of 2020-21.


But, with December cotton up 1.3% at 80.40 cents a pound, ie at a small premium, that indicates worry over new crop too, with conditions still dry in the key growing area of West Texas as sowings begin.

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