Wheat Market Outlook

From Mercantile’s perspective, Saudi Arabia’s tender was unexpectedly large, but the price does not support North American execution. Traders are going on holidays, so futures markets will be thin until after Christmas.

Mercantile says Russia continues to be the dominant force in the wheat market as shown by its performance at the GASC tenders. According to Mercantile, Chinese buying is supportive should it continue. Chinese holidays will have them away until Jan. 15, 2024.

China remains the largest customer for Canadian wheat, but at 539k mt, exports to China are just 51 per cent of last year’s volume year-to-date. Meanwhile, countries outside of the top importers have increased demand for Canadian wheat.

Mercantile says there was evidence of Fund buying as they start to cover their short. Mercantile does not expect too many moves and the volume will be light as we move towards Christmas. Mercantile has several important reports coming in this week (Australian numbers, Stats Canada, USDA reports), and they do not expect these reports to be bearish. Wheat sales to China are supportive and if Funds continue to buy in their shorts, Mercantile says they could see strength in the futures markets.

In Mercantile’s view, corn and wheat should be higher based on demand, unsettled politics, and weather in the Southern Hemisphere. – They do not expect to extend cash wheat sales until the New Year.  

It is a short week in the U.S. due to the Thanksgiving holidays. Mercantile believes wheat may go lower while the EU needs to sell against the Russian competition. Mercantile does not expect to see much from the funds, although they say it was interesting to see them short cover some last week. The disputes in the Ukraine and Gaza remain and may affect the markets.

According to Mercantile, the funds are maintaining a large short position, but there was nothing in the USDA report to cause them to change course. Russian wheat remains the cheapest for most of the potential importers, and weak currencies against the dollar remain negative to demand, Mercantile says. The trade will be watching the harvest results in the Southern Hemisphere and Chinese wheat demand.

Mercantile expects it will be a slow week with a new WASDE report due on Wednesday. Buyers might hope that wheat prices are lower due to the Russian duty reduction, however, Mercantile does not think so. According to Mercantile, wheat is struggling for fresh input amidst a visible lack of demand, while the funds still hold a near record short, and there are planting issues in parts of Europe and South American weather conditions are of concern. Mercantile would hold additional sales for now.

According to Mercantile, the Funds are carrying a large short position in wheat, but there is nothing currently in the mix to push them to reverse this. Mercantile expects prices to be lower as pressure continues from the U.S. corn harvest. Further forward, Mercantile sees firmer levels when the harvest is in the bin. Weak local currencies will keep prices low for the present while the Russians continue to be aggressive sellers of wheat. Mercantile notes, world events are extremely volatile at present and suggest a degree of caution. It should be kept in mind that there is a short crop in Canada and prices don't carry any war risk premium according to Mercantile.

Mercantile says the funds are short and believes more buying by China must be a concern to them. Currency remains a restriction to demand. South American weather, Ukraine logistics, Chinese demand, and a widening window for U.S. exports of wheat will be the market drivers according to Mercantile. In Mercantile’s view, wheat is getting too cheap, so they still think holding to the New Year, when they expect better prices, is the best strategy.

In the short term, Mercantile see futures trading in a narrow range and growers being reluctant sellers at current returns. According to Mercantile, Russia will continue to be the most aggressive seller as, in their opinion, the price is not too bad, and they need the dollars. It is difficult to forecast events for Mercantile when they do not know how the events over Hamas/Israel will develop. But Mercantile says to keep in mind that war zones do not create demand. Weather in the Southern Hemisphere, Chinese demand and Russian exports will be the main drivers moving forward. Mercantile would hold additional wheat sales for the new year.