Wheat price action calms

Wheat had a strong rally on Monday but spent the rest of the week in a quiet, sideways pattern. Price action has calmed considerably as traders wait for the next fundamental push. For the week, Kansas City gained 40¢, Minneapolis up 44¢, and Chicago was up 38¢. Corn gained 12¢ and soybeans rallied 42¢.

The Ukraine/Russia war has become brutal, but Ukraine is holding strong, and their farmers are headed to the fields despite tight supplies of fertilizer, fuel, and other inputs. Ukraine is trying to continue its export program by moving grain to neighboring countries, but logistics are keeping the pace slow. There are reports of Russian grain leaking out of the country, but those supplies will likely be minimal.

• READ MORE: A third of fields in occupied areas, hostile zones will not be planted, says Ukrainian ag journalist

We had expected to see more interest in U.S. wheat due to the sharp reduction of Black Sea supplies and our ability to supply the same type of wheat, hard red winter. But so far that has not materialized. U.S. wheat export sales not only haven’t surged but also are running well behind the pace needed to meet USDA’s projections. 

Last week’s export sales totaled 525 TMT (367 TMT was new crop), with the largest sale of 142 TMT going to Unknown. Year-to-date sales total 19.1 MMT, down 6 MMT from last year, a 24% decline. So far, we have sold 88% of USDA’s projections compared with the average of 99%. If sales volume doesn’t pick up quickly, we will see USDA lower estimates again in the two supply/demand reports left in this marketing year.

Part of the problem for export sales is that U.S. FOB offers are well above other world offers. We’re seeing India step up and capture business. While their wheat is normally sold into the feed grain market, sky-high prices are pushing some countries to use it for food. With back-to-back record crops, India is in a unique position to capture a large share of the business created by the war. 

Australia has had two record crops in a row and could fill demand with higher quality wheat, but port capacity is their main constraint. 

Neither of these countries sells the hard red winter that comes out of Ukraine or Russia, but obviously that is not a deal breaker – for now. The trade will likely feel different if the war prevents Ukraine from planting or harvesting their normal acreage. Their old-crop wheat supplies were mostly sold out, but if new crop is unavailable, it adds to the bullish fundamentals.

The market will look to the stocks/plantings reports on Thursday. Corn and soybean acres will be the most watched numbers, but not far behind will be spring wheat, cotton, and a host of other spring planted crops. Most crops offer some nice profit opportunities, and they all need more acres, so this report will be huge.

• READ MORE: Gauging 2022 planting intentions

Weather takes on much more meaning this time of year, and it is a mixed bag. Drought is still prevalent for pretty much the whole western half of the country, covering almost every acre of hard red winter wheat. Rains are forecast this coming week for the Central plains and would be vital to getting the crop off to a decent start after suffering through the winter. However, the Southern Plains are still mostly in a dry pattern, dragging down a crop that didn’t have that much more to fall. The Northern Plains have rain in the forecast as well, and parched soils certainly need it.

I think there is a good chance that wheat will resume its uptrend soon. I expect that the highs from the war-induced rally will be retested, likely in the normal seasonal window of early May. The chances of average yields for wheat are low, which would keep U.S. stocks tight and continue to support the longer-term bull market.

Editor’s Note: Louise Gartner owns and operates Spectrum Commodities. She has been in business since 1988, specializing in grains and cattle while providing analysis, risk management, and hedging/trading assistance. You can listen to her podcast on wheat and cattle at http://spectrumcommodities.podbean.com/.

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