Wheat Market Outlook

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.

Mercantile says geopolitical tensions are causing additional uncertainty in the commodity markets. There is currently a standoff between the fund short and farmer holding. - Mercantile would use this rally to finish old crop wheat sales but would not sell any new crop for now.

Mercantile says the international climate remains fractious, particularly in the Middle East. Mercantile is slowly seeing energy prices increasing and inflation starting to rise. In their view, world buyers are largely finished with old crop purchases. Futures will be moved by whatever Funds or farmers need to do. Mercantile sees the old crop going lower as carrying charges increase, while there will be little trade in new crop while traders remain concerned about weather and growers don’t like the values. – Mercantile would target remaining old crop spring wheat at $0.10 above current values, but would not sell new crop wheat for now.

Mercantile will have a new WASDE report on Thursday. Mercantile expects the USDA to lower wheat exports because of the Chinese cancellations a few weeks ago. According to Mercantile, the USDA will leave wheat production estimates alone and still expects slightly stronger wheat futures while the politics in the Black Sea area remains unclear. There were rumours of more Chinese cancelation of some wheat and corn, Mercantile said. The Funds’ combined corn, beans and wheat positions are at a record net short for this time of year, which should keep the volume of trade low until the WASDE report is absorbed. Weather and politics will keep trade at a minimum. – Watch for opportunities to sell remaining old crop wheat. Mercantile would not touch new crop sales yet.

Mercantile believes Russian and Black Sea politics will likely dominate conversation in the coming week. If the dispute between RIF and Moscow continues, Mercantile says it could be bullish the current crop wheat. The USDA seeded area and quarterly stocks reports are out on Thursday. The trade is expecting larger wheat stocks (one billion bushels) and smaller seeded area (47.3 million acres). All this is combined with a short trading week given the Good Friday holiday. Mercantile does not recommend cash sales at this time.

According to Mercantile, Chinese wheat cancellations/deferrals will weigh on the market in an environment where old crop demand is limited. The EU and Black Sea still have old crop wheat in need of a home before June. Mercantile would recommend looking at finishing old crop sales but would not sell new crop for now.