Egypt managed to buy a hefty 355,000 MTs of Black Sea origin wheat at $194/MT, or roughly $12/MT below what it paid in its last tender. Some 1 MMT of Russian wheat was offered, and the Black Sea cash market is noticeably weaker. Our work indicates that the market is in the process of forming a lasting bottom, but we await interior Russian cash market price action for confirmation.
Australia’s longer term climate outlook is trending wetter following updated ENSO guidance. Very little rain will fall in Australia in the next 10 days, and so vegetation health is expected to erode further, but thereafter there is evidence to support an improved pattern of rainfall in the Sep-Nov period. Aussie wheat is still rather expensive, but fob prices there have lost some $30/MT (12%) in the last four weeks.
Larger than expected Russian production, more aggressive Russian sales this week, and a shift in Oceania climate outlooks have weighed rather heavy on values in August. Rallies in the near term will hard fought. However, ARC estimates managed funds position in Chicago today to be net short 50,000 contracts, and very quickly funds’ position has undergone a 100,000 contract swing – from long to short.
The decline has been dramatic, but it’s no time to turn bearish with seasonal trends in both corn and wheat pointing upwards beyond late Aug/early Sep. We advise end users to extend wheat/flour coverage through mid/late 2018 at current prices. Producer revenue in all major exporting countries is lower than last year. Russia’s logistical constraints will cap its share of world trade. Gulf wheat is very cheap and futures are undervalued.
