US HRW could buy extra ordinary demand as global wheat price spreads narrow

The theme continues, stronger cash basis despite a lack of “extra ordinary” demand, but lack of grower or shipper engagement. We have said this for weeks, wheat is put away and the focus is on row crop harvest. Growers don’t like the flat price, despite the rally, and shippers are only loading existing sales. The mills are plugged from one day to the next, but when they have an opening they push to buy since the deferred basis is 10-20 ct/bu higher than the spot market. Exporters have existing sales that must be covered and logistics forces them to pay whatever it takes to load vessels. HRW is getting close to buying some “extra ordinary demand”, with buyers starting to ask questions and thinking they can pick off some cheap offers since US wheat has not been competitive. These buyers fail to realize no one cares and those cheap basis offers are not available, thus we’re $5-$7/mt too expensive. A sharp break in futures could change that on any given day. Domestic HRW basis closed up 4-17 ct/bu today on the spot market. Domestic spring wheat market closed unchanged. HRS struggles to match bids and quality with shippers trying to sell off grade wheat and mills asking for specific grades before they’ll priced it. SRW basis jumped 5-10 ct/bu in the cif market with the best bidder selling fob vessel 5-10+ ct/bu discount to barges. The PNW is all about covering shorts, managing logistics and trying to dig out of the hole as they compete to sell elevations. There are 1.0 mmt of vessels waiting to load wheat in the PNW line-up. With cash well above DVE for all markets we’re surprised to see the weakness in spreads the past few days. KWZ/WZ should be finding a bottom at 100 under, a level where HRW could be delivered against CME contract if it was in the warehousemens’ best interest, but we don’t believe that would be the case, if he/she needs to buy cash SRW. We also expect a VSR reversal in KCBT given the high cash basis f in export & domestic markets. We don’t expect a break in the KWZ-KWH spread that would stop the VSR reversal, it would need to trade -15.25 each day forward in the calculation period. The basis is much higher today than it was on the KWU9, when the warehouseman delivered & the stopped back or cancelled those receipts.

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