Could the Wheat Market End Up Being the Sleeper?
Jun 20, 2012
All of the talk of late is centered around soybeans and corn, but there is starting to be a little buzz stirring about the wheat market. Not only have we seen the USDA recently reduce crop production estimates here at home but also in key producing areas of Europe and Russia. There is some talk that Russian estimates are still way too high and could be reduced significantly in the weeks ahead. Keep in mind, several areas in Russia, Ukraine and Kazakhstan are all seeing temps between 95 and 105 degrees! These smoking hot conditions could invoke even greater damage. I should also mention that Australia is in the process of slashing its wheat production estimates by 5%-10%.
What could end up being the biggest kicker is the fact the Chinese are reducing their production estimates as well. As I mention time and time again, just how bad does the situation have to be for China to start cutting its estimates? As of right now, the Chinese have lowered this estimate by about 2%, but the rumors are it could more realistically be around 5%.
What you may not realize is that while there are extremely dry conditions in many parts of China, the cuts are being made primarily because of widespread damage associated with a fungus disease in the crop. The winter wheat crop now being harvested in China makes up about 95% of its total wheat production, so this harvest is critically important considering China is the world's largest wheat consumer. The rumor is, large producing areas in the southern part of China have been hit by major pest and disease problems, causing both quality and output to suffer.
We have already seen China step in as a buyer of SRW, but if disease is truly an issue, we may soon start to see some additional buying of higher protein wheats as well. There is no doubt Chinese wheat imports could easily double this year. In fact, there is speculation that China could import up to 5 million tons of wheat this season. No one is really certain how much wheat the Chinese have left on hand; many analysts believe it is around 30 million tons. Which, if true, could keep them from being massive buyers unless the prices really fall back.
With production in the global markets easing as of late, the world may soon start to look to the U.S. as a source for supplies. The problem is many producers here at home may have recently opted to stick a majority of the wheat in storage after harvest, then wait for higher prices. If the grain stays in storage, it will obviously take some additional coaxing to bring it back out. My hunch is, wheat prices will then have to move higher to get the grain out of storage. If you're a producer, continue to be patient, as higher prices might be just around the corner. As for specs, I continue to like bull spreading the CBOT "DEC vs MAR."
We are making some moves in response to what the market is showing us. You can sign up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow" and the Outside Markets. Just click here - Van Trump Report