A global wheat glut isn’t going away any time soon, and big money isn’t chasing commodities at the moment. Even so, there still are good opportunities for producers. Here are six takeaways from the Allendale’s latest wheat market outlook.
1. Expect a bumper crop. Ample rainfall in key production states is bolstering yield for all wheat categories, including spring wheat, winter wheat and hard red winter wheat.
“With the rainfall, we can see that really pulled yields higher,” says Cordon Sroka, a broker with the marketing firm Allendale, in McHenry, Ill. "And if there are no flooding or quality issues, looking ahead, there will be a record U.S. winter wheat yield."
2. Be prepared for a tough export market. The decision by Britain to leave the European Union has created volatility in global currency markets, driving the dollar higher and capping demand for U.S. commodities, according to Sroka.
“This will continue to ripple into the wheat market, being one of the most exported markets driven by value," he says.
Despite that, USDA’s wheat export sales goal of 925 million is 19% more than last year, and current sales are 35% more than last year and equal to five-year averages, he notes.
3. Be ready to sell feed wheat. Look for livestock producers, who are seeing prices fall, to buy feed wheat because it is slightly cheaper than feed corn, Sroka advises.
“So if you take out the drought set up (in 2012), this is probably going to be the best wheat feed that we’ve seen in quite some time,” he says. "These livestock guys are going to do whatever they can to make money this year, and if that at means feeding a bigger ration of wheat, that’s what they’re going to be looking at.”
4. Bet on a global wheat glut. Favorable weather for most of the world’s major wheat producers has only added to the global wheat glut. Russia, Ukraine and Kazakhstan are reaping record harvests and Australia, which exports a lot of wheat to Asia, is “back online,” says Sroka. China also has a bumper crop. USDA estimates world wheat supply ending stocks at 249.6 MMT, just 2.1% less than last year.
5. Remember to feed the pigs. Some of the biggest hog producers are turning to wheat feed because it's cheaper, Sroka says. According to a Reuters report, the third largest park producer in the U.S. is buying wheat to feed pigs.
6. Don’t bet the farm on a market wheat rally. Markets are likely to continue sideways and choppy.
“We’re not going to be looking for huge sustainable rallies in wheat,” Sroka says.
Any bounces could be a selling opportunity, he adds.
“Based on the demand and what we’ve got, we’re going to want to be aggressive on the sell side of the $5.25 to $ 5.50 area because the trend in wheat normally is down,” he says.