Wheat Market Comments: May 18, 2024

It’s been a wild few weeks in the wheat markets, so I thought it might not be a bad idea to put out an updated wheat market comment. Check it out below:

  • This week was an interesting one in the wheat markets. Markets initially moved 20-25 cents higher on Monday due to news of another Russian frost scare but sold off the rest of the week in a fairly predictable, orderly, trade.

  • The prevailing theme for Tuesday through Friday of the week was for algos to push the market higher in the overnights on 5-10k contracts only to sell it off throughout the day. Net for the week, we ended down ~12 cents on WN24 with one ugly looking candle. Looking at the 30-minute chart above, you can see the persistent pattern all week long. Spike in the overnights, down in the day.

  • From a technical perspective, the daily and weekly charts look ugly. WN24 looks to have room to run lower to about 640 before finding initial support. If that breaks, we could make a push to about 620, where the 200dma is sitting.

  • The macro theme of the markets is going to remain Russia and their production for now. Russia has dominated world wheat trade over the last few years, which has helped keep prices relatively low during a time where world exporter stocks were getting smaller. That trend appears to be ending this year with Russia having a smaller crop and no longer being able to support 50+ mmt of exports. The question all traders need to be asking themselves is “what will Russian production be and where will their exports end up?” It’s a nearly impossible question to answer now. Overall, the markets seem to be trading an 83-85mmt Russian crop, which likely spells exports in the range of 44-47mmt. This raises the floor for world wheat next year and could mean that the lows are in for US prices. Again, hard to say at this juncture. The Russian crop is not made until June, and the weather forecasts continue to be all over the place, but the general theme is the crop is getting smaller.

  • I would be remise not to mention the Wheat Quality Council tour this week. The tour found the crop at 290mbu vs the USDA at 268mbu. The one point of question I have is the anticipated abandonment. The tour is estimating abandonment at 19% for Kansas vs an average of ~5%. Feels awfully high. I am sticking to my KS estimate of just over 300mbu

  • Seasonally, the trend for wheat remains higher.

 

Flat Price Outlook: Right now, I am cautiously bearish, but on the sidelines. While I don’t think it’s a wise decision to short the market right now, but I do think that prices are likely still overdone. The wildcard will remain Russia and if their crop continues to deteriorate, it raises the floor for US wheat prices. Russia is likely to continue exporting in the fall, so the US situation won’t change much until the back half of the marketing year.

 

Cash Markets

    • The prevailing theme in cash markets this week was lower basis values. At the gateway, basis values had increased two weeks ago in response to the anticipated Canadian rail strike but declined this week as there is more wheat available, and demand has been somewhat sluggish.

    • Export values also declined this week with a net decline in the board and in basis values. On the market rally the last few weeks producers have been more willing to let go of old crop stocks and the export bids are trying to get more in line with world values to stimulate some export demand.

The May 17, 2024 hard red winter wheat basis levels at the KC gateway.
May 17, 2024 hard red winter wheat export basis values.

Intra Market Spreads

  • To me, the spreads have been one of the most interesting components of this recent rally. As I’ve mentioned a few times on my Twitter/X, wheat has been absolutely in the middle of a face ripping rally higher, moving over $1.00/bu higher from the lows, but we have sat at wide carry levels the entire time. It’s hard to convince me that a flat price rally has legs if the spreads aren’t showing it and that’s exactly what we’re seeing.

  • WU24-WZ24: currently sitting at -24.5. Feels like it will chop around these levels for the time being, but ultimately should fade off a little bit more.

  • KEU24-KEZ24: currently sitting at -21.25. Feels like it will widen as we move closer to harvest. I like it somewhere in the -24 range personally, but it could be a month or more before we get there.

 

Intra Market Outlook: Relatively large carries remain in the market as we move through to harvest and ultimately widen a little bit. There will be some wheat bought at harvest this year, the question is how much? Farmers have plenty of bin space after multiple droughts, so once it’s in the bin it may be locked away – especially if we don’t have the Russia situation figured out by then.

 

Inter Market Spreads

  • I like the wheat -corn trade right now personally and would like it even more if it weren’t for the Russia situation. Trade has blown out with WN24 ~200 over CN24 this week. Feels awfully wide and that trade seasonally should be coming in as wheat is harvested in June, while corn is still in its summer rally season. As I mentioned here, the wildcard is Russia. If their crop deteriorates further, wheat futures are likely to remain firm.

  • Same thing on the KWN24-CN24. We’ve taken the spread quite wide with the recent wheat rally as we are moving into wheat harvest with what’s anticipated to be the biggest wheat crop in 3 years. The current KWN24-CN24 is ~209. I like selling it back to 125 or so between now and first notice…. The key is still Russia.

  • Across the classes it’s hard to really point at anything out of the ordinary. I expect that HRW and SRW will trade close to parity this year with a tighter SRW crop and a looser HRW crop. We will see how the HRS crop progresses, but for now, there’s not much to worry about.

 

Inter Market Outlook: Wheat markets have widened vs many other ag markets over the last few weeks. This is expected with the Russia situation and the uncertainty that it causes. Right now, the wheat market is doing an effective job of pricing wheat out of feed rations. Whether it continues is the question? As long as there is uncertainty around Russia the spreads are likely to stay somewhat elevated.

 

Note: nothing in this post constitutes a buy or sell offer. All information is meant for educational use and are simply observations and opinions that I see in the markets. These observations and opinions are subject to change at a moment’s notice. If you are interested in trading and or hedging commodities, please carefully consider the risks and consult a registered professional.