May 23, 2018

It’s rare to have the cash market and the futures market so strong, when in fact there is no demand. This is acting like a demand pull market, when it is all about supply. The US is rationing demand faster than it may be losing supply. Today’s headlines were: India increases the wheat import tariff from 20% to 30% (cut world demand 1.5-3.0 mmt) Australia forecast 1-2 inches of rain in WA & SA http://www.bom.gov.au/jsp/watl/rainfall/pme.jsp, rain forecast for N. Plains & Canadian Prairies http://wxmaps.org/pix/prec2, record amount of spring wheat seed has been sold in the N. Plains, Indonesia will import 50% of their wheat imports from FSU. The only bullish news today, which I only read in a commission house recap, “USA talking about enforcing a 2001 WTO agreement with China to import 9.0 mmt of wheat, which has never been enforced”.

The rally in futures is starting encourage growers to sell bits/pieces of old and new crop wheat. The HRS growers in N. Plains have sold more than others & this is starting to hit the cash markets. Any selling of HRW or SRW by growers is being held by shippers to capture the cash carry. There are more reports the HRW crop hasn’t gotten bigger with the rain over the past few weeks, but there is more wheat being cut for hay. The rain was too late to do more than hopefully add some test weight. The SRW states are concerned about too much rain in the SE causing fusarium, test weight problems. WPAGW, spring wheat area is equal or greater than USDA’s March-1 intentions with potential for 550 mbu crop and 280 mbu c/o (52% stock/use). Exporters were seeing enquires from SE Asia & LAM buyers late last week, but those buyers have not been willing to follow the futures market rally. If there is anything bullish, its the weather concerns Australia/Canada/HRW/FSU/Eastern EU. FSU wheat is the cheapest wheat in the world. The origin that sets world wheat prices should be trying to ration demand to EU and one day the USA. Perhaps the reason for the rally in US futures is unwinding of Matiff/USA & Russia/USA futures spreads. Someone said today, “We don’t have a shortage of wheat, we have a shortage of futures.”

Despite the rally in futures, HRW basis was up sharply as traders worry about small crop in TX/OK & demand for storage wheat has shippers buying back their June/July sales. Domestic traders and exporters are looking for offers in J/J shipment positions. SRW market has everyone waiting for harvest quality with the cif and domestic markets are all bids and no offers. Domestic spring wheat market saw more cars/trains offered for sale today thanks to improved car placements, with premiums closing mixed, from down 5 to up 25 ct/bu. Mills were eager to fill gaps in the pipeline before the long weekend. PNW exporters said they were buying more wheat today on the rally in futures than they’ve seen in several weeks, with majority coming from HRS growers/shippers.

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