Despite a global wheat glut, record carryover piled up in elevators, and another bumper crop of wheat coming, the funds that are pushing up the price of corn are also lifting wheat, according to analysts.
“The strength of corn is holding the wheat market together,’ said Don Roose of U.S. Commodities. “It’s a technical market,” led by fund buying, he explained. “Wheat should go down fundamentally, but it’s going up technically.”
For example, fund buying lifted July wheat 10 cents to $4.76 in early trading Thursday. Such fund movements have “been tremendous” for corn, but they have also been big sellers of wheat, Roose said.
Still, despite the price rise on Thursday, farmers are feeling the effects of the wheat glut. In May, USDA forecast wheat ending stocks of more than 1 billion bushels, the highest level since the 1987/1988 crop year. In addition to the U.S., bumper crops of wheat are expected in Europe, the Black Sea area and Australia.
“With the cash price (for wheat) in Oklahoma, farmers will get paid less for 60 pounds of wheat than it costs to buy popcorn at a movie theater: $4,” said Angie Setzer, vice president at Citizens Grain in Charlotte, Mich.
Cash premiums for both wheat and sorghum are at five- to six-year lows at elevators throughout the wheat powerhouse of Kansas, according to Reuters. And a cutback in China’s domestic corn crop could also pressure global wheat prices even more.
“Some growers will struggle with wheat,” Setzer said. “There is not enough lipstick to make this pig pretty. Our elevators are full of everything.”
As a result, many farmers are tucking away wheat in storage they have built on their own farms.
Going forward, there are weather uncertainties, cautioned Setzer. For example, rain could threaten the quality of winter wheat in Texas, where from two inches to six inches of rain is anticipated.
If there is too much rainfall, wheat is ruined by a toxin-forming fungus that degrades it below milling quality.
“Everyone is thinking as if the wheat crop is in the bin,” Setzer observed. “The quality of the crop and what it is used for changes the cash-market structure as we move ahead.”
Some U.S. feedlots are looking at buying lower-priced wheat over corn, but domestic demand may not offset downward pressure from the global glut.
“The number one issue is India and El Nino,” said Roose, noting that wheat carryover is at a 29-year-high.
So what should growers do? “Farmers should be proactive. Talk to elevator about making sure there is space,” Setzer advised. “With my guys on wheat, I look at basis values (and) tend to make cash sales.”
Setzer said she expects to see a volatile CBOT, with wheat going up and down, “led by a cash market in different setups. … Too much supply for demand will work itself out in a year as localized cash market struggle,” she said.