Wheat

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Summary

Very light premium was added today. There is a lot going on in the wheat world but few are ready to suggest we have a clear risk-on or risk-off scenario. Middle East tensions are rising but not yet to the point where wheat supply or demand is at risk. Last week's jobs report reduced the trade's expectation of heavy -0.50% interest rate cuts in November and December. US wheat pricing would like a lower US dollar that would come with a heavy cut.

Market Report

Friday's monthly supply/demand report should be a quiet one for the US balance sheet. The trade will be using the lightly revised old crop ending stock posted on the September 30th Grain Stocks report. The prior 702 million bushel estimate was revised to 696. 2024 US wheat production was finalized on September 30, from 1.982 billion to 1.971. The average trade guess for the current 2024/25 ending stock is expected to show a drop from last month's 828 million bushels to 819 (ALDL 808). We would favor a light decline for Ukraine's completed wheat harvest. We would also expect USDA to lower their view for Australia which is preparing for its November - December harvest. Argentina is also preparing for its November - December harvest. We may see a light revision lower there as well.

Algeria's latest purchase by the state grain buyer was said to be 510,000 - 570,000 tonnes.

The other story regarding Algeria today was a bit of a surprise. In the latest tender the state grain buyer excluded French origin wheat from the tender. Rising political tensions, similar to three years ago, are now an issue for Algeria's traditional bulk supplying. Black Sea/Russia origin will likely get the bulk of near term business. Algeria is the fifth largest wheat importer. USDA sees their buying this year at 9 million tonnes.

Weekly export sales will be out tomorrow. As a reminder, though we should be able to meet/exceed USDA's current whole-year view for US exports we have seen inconsistent sales of late. To meet USDA's current goal remaining sales through May only need to run -1% vs. the five year average. Of the prior 12 weeks, only four met that goal. For tomorrow, 250,000 - 500,000 tonnes of US sales are expected. This estimate range is -34% to +46% vs. the 377,664 five year average.

Middle East tensions remain. This week's main story is the market now waiting for an Israeli retaliation against Iran. Their defense minister today said it would be, “…lethal, precise and surprising.”

Russia's agriculture ministry estimates winter grain planting at 13 million hectares. They still see a goal for the year next to last year's 20 mh.

Russia remains a heavy near term export competitor. SovEcon says in September they exported 5.0 million tonnes of wheat. That was -0.1 from last year in the same period. Their first quarter exports, July - September, are -0.5 vs. last year at this time. USDA expects them to end the year -7.5 from last year's total.

Ukraine remains a heavy near term export competitor. In September Ukraine exported 2.4 million tonnes of wheat. That was much above the 0.8 shipped last year in the same period. Their first quarter exports, July - September, are a full +2.9 vs. last year at this time. USDA expects them to end the year -3.6 from last year's total.


Crop Progress was out on Monday. The US winter wheat planting effort showed an increase from last week's 39% complete pace to now 51%. The expectation was 54%. The five year average pace is 52%.

USDA estimates the current Drought Monitor map shows 44% of US winter wheat acreage is in abnormally dry or drought conditions. Technically, winter wheat yields are not determined in March-May rains. The question is what type of premium is justifiable so early in the season.

Last week Egypt, world's #3 wheat importer announced a plan to limit their imports of wheat. USDA sees the country's total import at 12 million tonnes. About 8 of that is from government buying. Corn flour may be substituted for 25% of the flour balance in the nation's subsided bread offering. They also noted sorghum may be included. The state grain buying agency suggests it would reduce wheat imports by 1 million tonne. The new program could start in April.

CME Group announced a new trading offering for wheat will start on October 14. Two new spread contracts will start. The first will be Chicago wheat - Euronext week. The second will be KC wheat - Euronext. They don't have a good history with new product offerings. The latest, Black Sea wheat futures, ended last year.

Outside Market Factors:

Monthly non-farm payroll data on October 4 was quite positive. September job growth totaled 254,000. This was far over the 140,000 expected. It is also the best number in eight months. The prior 142,000 August estimate was raised to 159,000. The most recent 89,000 estimate for July was raised to 144,000.

The federal funds futures market has reigned in its expectation of large rate cuts at the coming November and December FOMC meetings. The current expectation is -0.25% at both. The most recent September 18 meeting of the Federal Open Market Committee ended with its first rate cut, -0.50%. Historically, lower interest rates are lightly supportive to wheat prices.

Wheat has an on an off again relationship to the US dollar. Since July of 2023 the relationship has returned to normal. A higher dollar pressures wheat. A lower dollar supports. During that period it is -0.41.

Pricing:

Chart: Wheat is in a light uptrend with new highs noted last week. Chicago is now opened up to the 650 ¼ unfilled upside intraday gap from 6/14. KC is eyeing the 654 ¾ gap from the 6/14 close…Rich Nelson