Afternoon wheat commentary: Both KC and Mpls trade into new contract lows
Price action overnight picked up where it left off yesterday, with the markets trading lower almost all night and then weakening even further during the day. Chicago finished the poorest at almost thirteen cents lower, while KC finished more than eight cents lower and Mpls almost a nickel lower. Both KC Sept and Mpls Sept traded into new contract lows, but those lows also may have benefited both classes of wheat as contract lows usually tend to bring out some technical support. With the closest support area in Chicago Sept probably being the 5.00 level, it is easy to see why SRW wheat futures led the declines today.
This morning we posed the question was Chicago wheat futures ready to take on leadership role to the downside. The obvious answer after today's price action is yes, but one or two days do not make a trend, Chicago is nearing support near 5.00, and we could possibly have a big GASC tender tomorrow, so all those influences could give the market some brief support. Unless demand surfaces it might be difficult to get much of a bounce, but it will be important for trade to see that support. As we have already talked about, the seasonal tendency for wheat is to weaken during August, the markets are vulnerable, and the funds have plenty of firepower at their disposal as the CFTC report last Friday showed them holding only a 17K short position in Chicago and managed money holding a small long position. Do not expect the crop report next week to provide much support as it is more of a corn and soy report and will probably have little influence in price direction in wheat.
After the close the GASC announced they were back in for wheat, but this time it could become a duel tender as they are in for Sept 11 thru Sept 20 and Sept 21 thru 30 shipment. Once again, the GASC will use letters of credit that guarantee payment within 180 days, instead of paying for the grain immediately. The GASC was just in last week, and they ended up buying a total of eight cargoes (470 TMT), of which six were Russian and two were Ukrainian. Part of the reason behind last week's large tender was that they negotiated most of the cargoes lower. The freight paid was between $11.37 and $13.95, meaning the freight was between one and four dollars cheaper than a week ago as well. Despite the negotiated pricing, and the cheaper freight, the avg price paid on all eight cargoes was $228.50, which was $2.62 more expensive than the avg price paid in the prior tender. The lowest FOB offer last week was a Russian cargo offered at $215.10, followed by other Russian cargoes at $215.90, $216.00, then $216.10, which was very similar to the prior tender. The lowest Ukrainian FOB offer was $216.84. Duel tenders usually mean slightly higher offers, but don't be surprised of they are similar to last week.
HRW basis bids weakened a little. Bids for 11-pro stayed +95/105, but the 11 ½-pro was off four to +106/+116, the 12-pro was off five to +125/+135, and the 12 ½-pro was off five to +125/135. HRW wheat export bids saw little change on Tuesday. In Aug, ORD stayed +125, and the 11-pro stayed +135, but the 12-pro firmed five to +150. In Sept, ORD remained +127, the 11-pro remained +140, and the 12-pro stayed +150. In O/N/D, ORD stayed +125, the 11-pro stayed +140, and 12-pro remained +154. SRW wheat barge bids at the Gulf saw no change on Tuesday. Aug stayed 60/67, Sept remained 70/78 and Oct stayed 75/85. HRW wheat barge bids at the Gulf firmed a little. Aug was up three to 148/158, Sept remained 148/158 and Oct was up seven to 155/165.
German stats office lowered their 2020 wheat crop projection to 20.23 MMT. German farm coop estimate is at 22.46 MMT. This would be roughly 12% lower than the year earlier crop. Planted acres are now seen at 2.8 mil hectares compared to the 3.1 mil last year.
Romania's Ag Minister said extreme drought conditions have sharply impacted their wheat crop and expects this season's production to come in around 5.5 to 5.6 MMT, which would be a 42% drop from last year's output. With 89% of the crop harvested, yields are averaging only 2.9 mt/ha compared to the 4.8 mt/ha last season.
French wheat exports to destinations outside the EU totaled 432 TMT during the month of July, about a third less than July of last year when they exported 648 TMT during the month. FranceAgriMer said cumulative 2020/21 soft wheat shipments outside the EU would fall to 7.75 MMT, which would be the lowest in four years and down 43% from last year. Algeria remained the top destination last month, taking roughly 182 TMT.
Export business this week:
*** The GASC is back in for wheat, but this time it could become a duel tender as they are in for Sept 11 thru Sept 20 and Sept 21 thru 30 shipment.
*** Japan is in for 130,295 mt of Aussie, Canadian and US origin wheat. The total includes 26,825 mt of Aussie white, 37,420 mt of Canadian red, 30,660 mt of US DNS, 22,760 mt of US HRW, and 12,630 mt of US white wheat.
*** Aug 12 Jordan is in for 120 TMT of opt origin milling wheat. The grain is for Nov/Dec ship.
*** Waiting on Ethiopia in their 400 TMT tender that has been already postponed many times, with the most recent July 24. They have received five offers, and they have gone through the process of being approved, but no purchase has yet to be made.