Wheat morning update and commentary: Look for a firm day today
The wheat complex started the night a little weaker, and price action remained slightly lower through the early morning time frame. Shortly after the European markets opened a bid surfaced which rallied futures almost ten cents. Thinking it had to come after news surfaced that according to Russian grain industry sources, the Russian Ag Ministry is planning to implement a first half 2020 grain export quota system. Russia still has plenty of wheat. SovEcon pegged Russian wheat exports at 20.6 MMT through the first half of their marketing year this year, and the Ag Ministry expects to export 33.5 MMT of wheat. The Ministry will probably do something similar to last year when they gathered the exporters together and basically told them the country will not export more than 2.0 to 2.5 MMT of wheat in any single month the rest of the marketing year. Again, this is just a proposal - nothing official, but where there is smoke there is usually fire, and at some point, we could probably expect this to happen. Whether this comes to fruition or not, the wheat complex usually tends to run with news like this, as evidenced with the reversal and strong gains overnight. All three classes of wheat ended the evening right off its highs, with Chicago and KC finishing around six cents higher and Mpls more than three cents higher. Expect a strong day today, especially with the offers for the GASC tender a couple dollars higher than what we were thinking. Look for Chicago March to trade above 5.70 and KC March to trade above 4.00. The question will be if the markets can hold that move. Keep in mind, we have seen situations like this develop before in Russia, most recently just last year, and the country finished their marketing year with no issues to their wheat export program. The bigger influence may eventually be what impact this has with countries around Russia. The US could probably expect more Asian flour mill demand to come our way, if Brazil eventually cannot look to Argentina any more for wheat they may look more to the US and not Russia, and then what about China? If they start buying US wheat it could dwindle our stocks rather quickly. Again, that is looking down the road a little, but we all know how the wheat complex likes to buy first and ask questions later.
Yesterday, HRW basis bids were unchanged from Friday. 11 pro is said to be +90/+100 over, 12 to 12.5 pro wheat is said to be +145/+155 over, and the higher 13 pro was said to be +200/+210. Export bids also were unchanged (glad to see they are not backing off any). For Jan, ORD is +122, the 11 pro is said to be +132 and the 12 pro is said to be +164. Feb/March has ORD +123 bid, the 11 pro is said to be +133 and the 12 pro is said to be +165.
Today is the last day of the index fund re-balancing.
After the close the GASC announced they were in for wheat. The last time the GASC was in for wheat was just last week, and they picked up five cargoes (300 TMT) of which one was Ukrainian, two were Romanian and two were Russian. The average price paid was $245.71/mt which was roughly $7.52 more expensive than the price paid in its prior tender. At that time, 11 pro US HRW wheat landed was probably around $258. SRW wheat was even further out, as it looked to have been around $280 landed. The lowest FOB offer this morning last week was a cargo of Russian at $235.30/mt, which is $3.53 higher than the low offer last week. Other Russian offers ranged between $235.82/mt up to $243.25/mt. The lowest French wheat offer was $235.86/mt, which was $2.58 higher than their low offer last week. The lowest Romanian offer was $236.97/mt, which was $4.18 higher than their low offer last week, and the lowest Ukrainian wheat offer was $237.50/mt, which was $5.73 higher than their low offer last week. Hard to tell what the GASC will do as these offers are a couple dollars higher than what I would have thought. With US wheat futures 20 cents higher than a week ago, 11 pro US HRW wheat landed in Egypt is now probably well north of $260.
Export inspections Monday morning came in a little better than expectations at 474 TMT vs an adjusted 421 TMT last week (76 TMT increase) and 551 TMT this time last year. The report included 107 TMT of HRS, 163 TMT of HRW, 83 TMT of SRW, and 120 TMT of white. Current market year to date is 15.395 MMT vs 13.491 MMT this time last year. There were full cargoes sent out Korea and the Philippines, with smaller vessels sent out to Brazil, Ethiopia, Haiti, Mexico, Nigeria, Chile, Indonesia and Japan.
Export business this week:
*** Egypt's GASC announced they were in for wheat for shipment over the March 1-10 period.
*** Turkey bought 100 TMT of durum wheat, reportedly paying between $308.98/mt and $322.75/mt CIF for the grain. They are also in for 550 TMT of red milling wheat. The lowest offer thus far for this wheat is $237.99/mt CIF.
*** Jordan is in for 120 TMT of opt origin wheat. They received five offers, but no purchase has been made.
*** Jan 16 Taiwan Flour Millers are seeking 99,075 mt of US milling grade wheat. The grain is for shipment in two consignments, one for March 10 to March 24 and the other between March 26 and April 9.
*** Jan 16 Japan is in for 117,831 mt of Aussie, Canadian and US wheat. The total includes 22,650 mt of Aussie white, 35,320 mt of Canadian red, 24,646 mt of US DNS, 18,815 mt of US HRW, and 16,400 mt of US white wheat.
*** Jan 20 Syria is in for 200 TMT of Russian wheat.