The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. All trades presented on allendalehub.com are hypothetical. Hypothetical performances results have many inherent limitations, some of which are described here: CLICK HERE TO READ FULL DISCLAIMER
KC wheat was able to fill its downside gap left from June. Chicago already filled that same point. Russian export estimates for October were upped yet again. Recent rains there have lightly easing new crop planting concerns. Some could also suggest a psychological trade war risk discount. The longer term supportive story, which includes both old and new crop stories, is still on hold. It may be two or three months before Russian old crop exports slow. The second, still a bit too early to panic about, is concern over summer 2025 harvest prospects for the US, Ukraine and Russia.
Other:
The Trump/Vance campaign is said to have picked up support recently. Some mainstream news organizations suggest they are not just winning the electoral college vote but also the general national vote. This may be a light factor in some sort of trade war concern. The US is a moderate exporter to China. In the completed 2023/24 marketing year, June 1, 2023 - May 31, 2024, our shipment to them was 80 million.
Crop Progress will be out this afternoon. The trade expects the US winter wheat planting effort to have advanced from 73% complete last week to 83%. The five year average for harvest as of Sunday will be 81%. This is the fastest harvest since 2010.
USDA will issue the first of new crop winter wheat condition ratings this afternoon. This is always a tough one to estimate. The trade expects a 47% good/excellent rating. The range of estimates from the weekly Reuters survey was 42% - 53%. Of note, the Bloomberg news wire survey is a little different. Their estimate was 43% with a range 35% - 51%.
The US ag attache estimated the Q4 Argentine wheat harvest at 18.0 million tonnes. That is at USDA's official number. The Rosario Grains Exchange is at 18.6.
Drought in the US is expanding. Currently 58% of US winter wheat areas, hard red/soft red/white, are in one of four drought classifications. At the start of September it was 52%. At the start of August it was 41%. When you add in the other 28% that is classified as abnormally dry, 86% of all areas have some level of dryness.
US wheat export sales on Thursday were positive. US sales last week were a good 532,885 tonnes. This was positive at +49% vs. the five year average. We are now seeing signs of not just moderate stability in sales, but a light return to positive numbers. We expect this to moderately improve into winter/early spring.
On Thursday USDA's ag attache to Australia estimated the wheat crop, currently in harvest, at only 25.8 million tonnes. This was a bit lower than most would expect. Back in early September the Australian government was at 31.8. Since that time though the trade has lowered its own view due to frost and dryness. Private analysts started lowering their own views by early October to the 27 - 31 mt range. USDA appears a bit excessive at a 32.0 view.
Russia
Yet again, SovEcon has upped their view of Russia's October wheat export. Their pattern, through weekly updates, was 4.6 million tonnes, then 4.7, then 4.8. Now it is at 5.0. This is +0.4 from last year's record October export. It brings the July - October pace to even with last year. USDA sees the whole year ending -7.5 from last year. There will be point in the months ahead when this Russian export story is likely to sharply change. For now, that bullish story is on hold. SovEcon has previously warned that the Russian government's export tariff increases could likely lead to a heavy upfront export.
Last week two private estimates for Russia's 2025 summer wheat harvest were released. SovEcon posted a drop to 80.1 million tonnes. IKAR suggested a range from 80 - 85. USDA's current view for the completed 2024 harvest is 82.0. USDA will not release their own 2025/26 numbers until May. Let's be very careful about making claims of heavy production losses for 2025. The ugliness with winter wheat yields is that spring rains, almost with no concern how the crop looks during winter, are the key determinant. All we can ethically do right now is perhaps cut planned acreage lightly.
Two weeks ago the Russian agriculture ministry told exporters not to make an export sale for wheat unless prices were $240 per tonne in October, $245 in November or $250 in December. Prices rose to $240 last week. They have since slipped to $233.
Rains of 1.2 - 2.4 inch fell over the recent two weeks. The next two are set for 0.8. This does not fix their drought. It does ease the concern.
Ukraine
Last week APK-Inform warned that Ukraine's winter wheat crop is seeing some hardship. “Agrometeorological conditions in Oct. 10-20 in Ukraine were generally favourable for the rooting and initial growth of winter crops, but due to the late emergence of seedlings, almost all crops are at risk due to poor development.” This firm has yet to post an official production estimate for the summer 2025 harvest. USDA won't until May. Dryness at planting is a problem for Ukraine, Russia and the US. However, it is a bit early to raise significant concern.
The Ukraine agriculture ministry reports winter grain planting at 83.5% complete. Winter wheat, in that mix, was seen at 85.9% complete at a total of 3.85 million hectares.
Rains of 0.8 - 1.5 inch fell in Ukraine over the prior two weeks. Minimal rains are set for the next two weeks.
USDA Current Crop: Much of the US wheat story is known, old crop stocks and US 2024 production. Ending stocks were lowered by 16 million on the recent report, now 812 million.
Outside Market Factors:
The Bureau of Economic Analysis will release its first estimate for the completed US Q3 Gross Domestic Product on Thursday. Q1 was estimated at +1.4% year over year. Q2 was better than expected at +3.0%. This will help influence planned interest rate cuts by the Fed as well as US dollar values.
The rate of retail price inflation, the Consumer Price Index, fell from +2.5% year over year in August to +2.4% in September. This was just over the trade's estimate of a fall to +2.3%. Markets maintain their current view that the Federal Reserve will lower short term interest rates -0.25% at the next November 7 meeting of the Federal Open Market Committee.
Wheat has an on an off again relationship to the US dollar. Since 2019 the dollar index and Chicago wheat have not had a normal relationship. Typically, they hold a negative relationship to each other. Since 2019 that relationship has not been seen. The correlation was actually positive at +0.21. Something has changed though. Since September 27 of this year the dollar index has rallied sharply. During this specific time the correlation is back to normal, -0.52. A higher dollar is back to being negative for wheat pricing.
Pricing:
Chart: Wheat is back to a mixed five month trend. The recent three weeks are lower. Bulls are disappointed with the lack of upside follow through. There are still chart gaps left open at much higher prices. But bulls do not have control of the market in the short term. Bears note Chicago previously filled its downside gap from the 9/20 close, 568 ½. In today's trade, KC filled its gap from that date, 564. Additionally, the close near the low still suggests bear control. This was the lowest close for Chicago and KC since August 30 and 29 respectively…Rich Nelson