Eye on weather, supply

The wheat market is battling peak harvest pressure in the US, as well as the general perceived oversupplyin global markets, and waxing and waning weather issues for US corn and soybean crops.
Nanjing Night Net

BIN-BURSTER: A strong winter harvest is putting a lot of pressure on US wheat futures. The USDA report for July has been somewhat negative for wheat.

All futures garnered support in June as the market speculated about a dry, hot July based on La Nina weather patterns. Prices pulled back as weather concerns reduced, with wheat caught up in general market moves.

We are facing the next round of forecasts into August, with hot, dry weather still a problem for finishing corn crops and the US soybean crop.Risk premiums get built into prices any time forecasts look like tending towards hotter conditions with less rain, and vice versa.

The problem for wheat is that a bin-bursting winter harvest in the US is quite advanced.

The oversupplycontinues to put pressure on US wheat futures, as the market trades through what will end up being the seasonal low for wheat.

The USDA report for July has also been somewhat negative for wheat in that projected ending stock estimates for the US itself were raised another 1.5 million tonnes to 30.08 milltonnes.That will continue to be a dead weight for US futures.

The positive news from the USDA report was a projected drop in global stocks from previous estimates, even though they too are projected to grow 9.18 mill tonnes year on year.

Low wheat prices and strong supplies of feed grade wheats are seen as lifting wheat consumption for feed use.However, wheat will have to remain competitive against corn for higher assumed usage rates to be achieved.

Outside of China and the USwheat stocks are still under pressure, tightening 1.11 mill tonnes year on year since the June USDA estimates were released.

Year on year stocks outside of China and the US are projected to fall by 9.89 mill tonnes.In terms of price support in global markets, we will need that tightening of stocks to translate into a lift in demand for US wheat to reverse the ongoing buildup of US stocks.

We could see demand shift back to the US by more than current numbers are suggesting.The wheat crop in France continues to be wound back, both in volume and quality.There are also quality concerns for parts of the Russian crop.

Already,US wheat exports are running more strongly than they were at this time last year.If demand for milling wheats pushes more demand to the US, it may provide the trigger for US ending stocks to be wound back from current estimates.

That will become a positive driver for global milling wheat prices, which in turn will determine the fortunes of Australian wheat growers.

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