The USDA data released last week unexpectedly showed higher global ending stocks than the market was expecting for wheat. To me it was a report day surprise which forced some managed money longs to liquidate on report day and the session after. Yearly fifty percent retracements took Dec 18 KC wheat below 5.04 and Dec Chicago wheat under 5.01. We have since bounced albeit lightly in both contracts with Dec Kc trading back above 5.20 over the last two night sessions while Dec Chicago challenged 5.15. While the USDA is potentially seen as too optimistic for world wheat crop production estimates, foreign gov’t agencies are telling a different story and creating unknowns in my view. Two instances to consider going forward.
There was another reported lite frost across SE Australia overnight with lows dipping near 30 degrees. Producers claim that repeated frost events have impacted yields, it’s just a question of amount? Ag Weather sites note that the Aussie weather forecast offers no rain for next 10-12 days which only deepens the drought. September is the key time frame for moisture and most private Aussie wheat crop estimates have slipped to 16-18 million metric tons. This compares to the USDA which announced a crop estimate of 20 MMTs within last week’s September report. Egypt’s GASC is seeking November wheat into the 20th to extend their coverage and see where Russian bids are for late autumn wheat? Most in Russia continue to discuss export restrictions that would start in December. Amid drought and reduced EU, Australian, and Canadian crops, GASC tenders in ‘19 could be interesting. Would they include Argentine and US wheat in future tenders? The Russian spring wheat harvest continues to face challenges from snowy/wet/cold weather. The Spring wheat variety accounts for 30 percent of their total wheat crop. So far Siberian farmers have harvested only 2 percent of the spring wheat crop down 64 percent from last years pace. Should weather issues continue to hamper these areas, I don’t see wheat trading below 5.00 for long.
With this in mind, lets look at KC Wheat vs Corn. This spread broke 88 cents from the early August highs of 2.35 KC wheat over to 1.46 early last week. If Dec Kc wheat can hold 5.10 to the downside, buy it vs Corn at 1.70 with an objective of 20 cents to 1.90 or potentially 2.11 over Dec corn. A close over 5.26 Dec Kc wheat could push it to 5.49-5.50, trend line resistance. Do not buy this spread if outright Dec Kc close below 5.10.
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