Wheat Merchandising: Disorderly Markets - Traders Navigate Exports, Dry Weather, and Tight Balance Sheets

Wheat has been anything but orderly the past five months, and that does not look to be changing soon.

The market has rallied off harvest lows solidly the past 60 days, as lower world production and rallying cash values have renewed buying power into the complex, and rallies in Paris wheat and Black Sea values set off a little panic.

After making fresh highs mid-August, we have seen prices slide back with a pressured corn complex and exit of hedge/index fund longs. This coincided with the seasonal flow of Kansas City Board of Trade December wheat (KWZ) and Chicago Board of Trade December wheat (WZ) making lows in the month of September, but once again concerns/issues in Black Sea and dry U.S. Plains conditions have supported values at mid-month.

Demand for exports has been steady and on pace to meet the USDA 2021-22 outlook of 875 million bushels, though this would be 12% off last year’s 992 million bushels.

Domestically, buyers are pushing back from the table and building a premium into the Oct./Nov./Dec. time slots for ordinary and protein values. This is the case of a squeezed space issue for commercials, as they look to make room for fall crop harvest but have shown little interest in selling for that three-month timeframe, one that historically has mills/buyers scrambling to get coverage.

Traders will continue to watch exports, since values in the United States still are high-priced on the world stage. Though there is chatter on European quality and Russian crop size, we are not seeing buyers shy away from those origins.

While we remain in a demand market, eyes are shifting to U.S. Plains weather patterns, as well with HRW planting conditions and pace quickly taking center stage.

Drought is taking hold in much of the Southern Plains and into eastern Kansas. One good rain for the region would quell a lot of concern.

Continue to look for a rocky trade in the wheat complex. Balance sheets are the tightest they have been in some time, placing pressure on any new production issues, but a weaker corn/soy complex, better rains in Russia, and improving conditions in Argentina will weigh on a bullish outlook.

Theodore Nelson is a risk management consultant with StoneX Group Inc., Kansas City, MO; 800-255-6381.

From the September/October 2021 GRAIN JOURNAL