Wheat Market Outlook

Mercantile predicts that markets will remain difficult to forecast. Farmers are under sold and consumers are under-bought. There was a nice flush of tender business last week and exporters will be hopeful of more to come. It is not evident where the next wave of buying will come from. What’s is for sure is again there will be prices driven by Europe in the early part with better North American levels December forwards. The soft wheat discounts will be lower. Mercantile sees no reason to chase sales at this time.

Mercantile expects the markets to remain weak due to dumping of remaining old crop product and new crop harvest pressure from Europe. This will put pressure on futures, but Mercantile does not expect to lower prices for forward cash. Presently, Mercantile does not expect too many cash buyers to come to the market, but they note that new crop coverage is low.

Soft wheat will stay bearish. However, Mercantile would not sell any cash hard wheat until later.

Mercantile says that there was nothing in the WASDE report to stir the markets. Wheat traders are looking at the sluggish demand, and the abundance of old crop wheat that needs a home before harvest starts. Looking further out, there are several weather concerns and wheat supply will be tighter this year once all work through the glut of grain that is currently on the market.

According to Mercantile, the recent tenders demonstrated both the lack of cover of the major importers, but also the abundance of available old crop wheat. Weather is still a major issue in some regions (Russia and France) while politics are causing additional complications, says Mercantile. The USDA report is out on Wednesday.

According to Mercantile, wheat prices seasonally decline in June as harvest begins in the Northern Hemisphere. However, weather concerns, especially in Russia where the drought is expected to deepen, will challenge the seasonal weakens of the wheat market.

It is a short week, so Mercantile doesn’t see much change in the markets. The futures will be lightly traded and a little weaker by the and of the week, but thin according to Mercantile. Growers will sell some old crop and leave the new crop alone while weather is so variable. The funds will remain undecided. Mercantile would continue to hold new crop sales for the time being. Mercantile does not see a reason to sell any new crop while weather remains unpredictable.

All markets opened the week stronger, according to Mercantile. Minneapolis spring wheat futures were up 21.75 to 28.25 cents across the board. Weather is likely playing a factor, as the next seven days remain dry for the Southern Plains. Mercantile says Russian and EU FOB prices have also recently climbed to a more competitive price with the U.S. on the Black Sea crop concerns. EU (Matif) futures were up $12. Mercantile does not see anything that is bearish in the short term. Weather concerns will continue to dominate the markets.

According to Mercantile, many of the origins saw their stocks lowered, so Mercantile says these are bullish statistics. Ukrainian domestic supplies are the lowest since 2013, as production declines and stocks normalize.

According to Mercantile, Funds are nervous and are reversing positions and consumers are largely uncovered and are getting anxious. On the other hand, Mercantile says Russia seems to have the capacity to keep one million mt/week flowing for another 14 months, and current prices are high relative to stocks. Assuming normal yields for now, farmer margins are swinging back into the black.

Mercantile says wheat has benefitted fund-led short covering, but now will watch corn, where funds are still near record short and long-term moving averages have been broken. According to Mercantile, wheat has become expensive vs. corn, so any further strength in corn could provide the next wave of support to wheat prices.

Funds are now long MATIF, which is a partly a reflection of the smaller W EU crops and the risk of a smaller Russian crop. Mercantile says the challenge is that Russia is the most aggressive new crop seller, and they may well raise the reference price to lower the export tax.

While weather continues to be difficult to read and plantings are delayed, Mercantile does not see any major reasons for markets to fall, although wheat could be overdone.

Nevertheless, 97.9 per cent of Kansas is experiencing some sort of abnormal dryness, according to Mercantile, and there are concerns in most of Europe. In this climate, Mercantile does not see growers selling. 

So far, Funds are not covering their shorts, but Mercantile thinks they must be getting worried. While the weather remains uncertain, Mercantile suggests that growers make no new crop sales.