Wheat Market Outlook

Mercantile expects some weakness in wheat futures following the decline in cash values. Mercantile says there will be more pressure on the old crop as weather concerns and low returns makes new crop sellers reluctant. Chinese cancellations of wheat changed the United State’s tone, according to Mercantile. Cash wheat markets remain weak as the EU and Black Sea search for old crop demand. Mercantile would finish old crop sales but would hold off selling new crop for now.

Mercantile says there are few buyers left for the current crop wheat so prices could be headed even lower whilst they still have current crop sellers who need to sell. However, Mercantile does expect some Fund buying so they would leave cash markets alone for the time being.

According to Mercantile, Russia still has wheat to sell and this is lowering world price as the EU needs to reduce stocks. Wheat needs to fight for feed demand as well as milling demand. Meanwhile, Funds have a record short at a time when prices have fallen below the cost of production for growers in some areas. Either costs will need to go down, or markets higher.

The opportunity for an old crop wheat rally is dwindling, according to Mercantile. Every major wheat exporter still has wheat to ship, and exporters will be competing for shipping windows in the next three months before the new crop harvest starts. Mercantile says more questions remain as to if there is demand for all the available wheat. Currency devaluations in many importing nations means that wheat continues to be very expensive, according to Mercantile, even though wheat prices in U.S. dollars are approaching pre-war levels.

The EU, Russia and Ukraine need to see record export demand for Feb. through June to meet USDA projections, and there seems to be little evidence at the moment that demand will come close to those numbers.

At the same time, traders are concerned about the developments in the Middle East and about geopolitical disputes in general. This environment will keep markets steady, but as the cheapest food grain, it could support wheat rather than corn. However, the Russian government’s action last week to drop the ‘recommended’ export floor price shows they are ready to continue fighting for markets.

Mercantile recommends producers be fully sold on durum and look for opportunities in spring wheat.

As prices fall, there is a declining likelihood of further decreases, but at the same time, there are indications of more distressed sellers trying to generate cash to pay for spring inputs given expensive storage and finance costs. Heat and dryness are noted in India, but given last season’s experience, the market will be reluctant to react too aggressively. Poor crop prospects in North Africa support notions on imports. Meanwhile, the EU and Black Sea countries need to find a record nine million mt per month of export demand to reach current export forecasts before new crop arrives. This somehow needs to be achieved with two conflicts being fought along the supply chains to the Middle East and Asian markets. Traders are concerned about the developments in the Middle East and about geopolitical disputes in general. This kind of environment will keep markets steady to lower, but as cheapest food grain, we could see wheat firmer than corn. We would be fully sold durum and wait a little to see if we get some spark in spring wheat.

Mercantile’s outlook this week:

Mercantile’s Outlook This Week:

The markets are closed today for Martin Luther King Jr. Day. We do not expect much of a decline in wheat during the week. In fact, we expect wheat to show some strength. Funds will continue to buy in their short. But we don’t expect a decline in Black Sea cash offers. Algeria tenders Tuesday for its April soft wheat requirements and it will be interesting to see what is offered. We suggest holding wheat until we see the offers against Algeria.

The next USDA report is out on Friday (Jan. 12, 2024). Mercantile says the trade is expecting a smaller winter wheat seeded area. Cold temperatures in parts of Europe, and excessive moisture in parts of the EU are giving rise to some production questions, but harvest in the Northern Hemisphere is still over five months away. Consumers are buying as needed and see no reason to extend coverage beyond that.