Wheat Market Outlook

According to Mercantile, wheat futures increased across all three exchanges on Monday, as well as Russian FOB prices in the last week. The annual Small Grains Summary showed all wheat production at 1.9 billion bushels, which was down 11 million bu from the August Crop Production report. Year-to-date U.S. shipments sit at 8.2 million mt which is just more than 35 per cent higher than this time last year. Following Monday's Stocks in all positions report, Mercantile notes the market will watch U.S. yields, Brazilian rain, EU/Black Sea crop size/quality and Chinese demand. Mercantile suggests growers stay patient.

According to Mercantile, the wheat market is decently supported as harvest pressure eases. With that said, Mercantile believes wheat prices will remain under pressure until values firm in the Black Sea and dryness in the Black Sea, the U.S., and Australia will need to be watched. Mercantile would store wheat and avoid additional sales until 2025.

Mercantile says despite today’s profit taking, the wheat market remains supported. The balance sheet is getting tighter according to Mercantile, and growers are getting more grain into storage which will need better bids to get it out. End users remain uncovered whilst borrowing is a problem for many. Mercantile still expects higher prices in the New Year and would hold wheat sales for now.

Mercantile does not see a reason for changes, unless they find a big change in the WASDE report. Weather conditions in South America remain poor and Mercantile does not see reasons to be enthusiastic about North American production. Europe is down, while markets have been on the lower end for the last three years. If cash flow is not a problem, Mercantile would use storage and not make further sales.

According to Mercantile, the market went into the long weekend buoyed by the week’s gains. However, Mercantile will watch if Black Sea values follow suit. Spot markets may have printed seasonal lows, but few are willing to pay the record carries. Mercantile expects futures to stabilize or maybe get stronger, as the weather forecast is not great. The carrying charges in the markets encourage growers to use their storage to the maximum.

Mercantile expects grain markets to hold steady as Europe has mostly completed harvest. According to Mercantile, disputes in the Middle East look to be escalating as cargo vessels are under attack in the Persian Gulf. Meanwhile, prices will stay low for now while demand is outweighing the farmer rate of retention. Mercantile says Russian exporters remain aggressive as their February to June quota will depend on what they ship from July to December, which, along with increasing crop expectations, is keeping Australian prices under pressure. According to Mercantile, in the long term, the weaker dollar, a likely lower interest rate, and an end to European harvest pressure should be more bullish on cash prices. Mercantile would continue to hold more sales.

According to Mercantile, U.S. wheat export sales are running 32 percent ahead of last year. However, Mercantile expects markets to remain under pressure from harvest. Meanwhile, buyers are reluctant to commit to deferred positions due to the large carry increasing later delivery prices. When crops are in the bin, Mercantile sees prices firming.

According to Mercantile, Algeria and Egyptian demand give a bit of support, as well as smaller production in Europe. Some of this will be offset with large crops in Canada, the U.S., and the southern hemisphere, but there is a chance that we are approaching a floor in the wheat market. The USDA report is expected to show larger wheat production in the U.S., but smaller global supply. The markets remain under pressure from harvests. Mercantile expects futures markets to remain weak nearby but will improve when crops are in the bin.

According to Mercantile, harvest pressure will be prevalent in the wheat markets in the short-term. Smaller crops in Europe are being met with weak demand and the potential of good crops in the Southern Hemisphere. Mercantile says Russian wheat remains the cheapest origin and good crops in the Baltic states will prevent Russian prices from appreciating much. According to Mercantile, traders are trying to gauge the converging impacts of weak crops in the central EU and strong corps in the eastern and western EU countries.