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Wheat Outlook - Wheat needs help from corn

Lower world production isn’t enough to buoy exports much

In normal times during July, wheat is often the first market to turn after making harvest lows when combines roll across the central and southern Plains. But for wheat to muster much of a rally this year, help will be needed from higher corn prices.

To be sure, USDA had soothing words for wheat in its July 11 production, supply and demand report. The agency boosted it forecast for 2019 crop exports due to a smaller world crop, notably in Russia, the world’s leading shipper of the grain.

But even with that optimistic outlook, the government’s outlook said supplies would remain above 1 billion bushels. That would be an improvement from carryout leftover June 1, but not enough of a reduction to make much difference. Moreover, U.S. exports could face an uphill battle trying to regain market share from a host of competitors around the world.

Russia, for one, won’t give up its newfound crown without a fight. Its crop will still be the second largest ever, and prices are sinking fast to remain competitive. Output in northern Europe is recovering and the EU in general is looking to export more wheat outside its boundaries this year.

Rains appear to be returning to Canada, with reductions there due to acreage, not yields if the pattern continues. Argentina’s crop was seeded and off to a good start, though weather has turned drier there. Australia is another unknown from the southern hemisphere. The end to the 2019 El Nino could bring relief to drought-hit crops if the shift in the warming of the tropic Pacific returns to a neutral reading.

Domestic usage of wheat should benefit from increased feeding to livestock thanks to cash prices trading at a 10 to 20-cent discount to corn over much of the central and southern Plains. But that at best is a 100-million-bushel boost, good news but not enough to make much of a difference.

Nearby futures charts remain locked in downtrend at all three markets. Seasonal trends are also struggling to retain momentum from the rally off May lows. Inability to take out June highs could lead to more selling unless corn comes to the rescue. The next inflection point for corn is Aug. 12, when acreage will be updated along with a first look at yields.

Wheat production estimates, meanwhile, continue to edge higher. Spring wheat ratings were mixed this week but the overall condition of the crop looks better than average.

With all three markets below breakeven, look to roll the dice into the August reports.

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Wheat carryout could be down in the year ahead but could still run 1 billion bushels or more, keeping a lid on average cash prices.

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December SRW needs a move above June highs to confirm it’s following the trend seen in bullish years.

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 Russia’s crop is smaller, but still the second largest, which is pressuring wheat prices despite a weaker ruble.

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Wheat is trading at a discount to corn, which should encourage usage in Plains feedlots.
Download a complete version of the outlook with extensive charts and analysis using the Download button at the end of this report.

More from Farm Futures:

Corn Outlook

Soybean Outlook

Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Market Review on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat futures that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.

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