Wheat futures ended higher for a second consecutive session ahead of Friday’s stocks & seedings data, and following ABARES revision to Aussie 2016 wheat production on Tuesday. ABARES took 2016’s harvest down to 30 MMTs, vs. the USDA’s 33.5, and so following drought this year end stocks will struggle to exceed 3 MMTs. The Aussie wheat market must now work to slow exports and keep the domestic pipeline filled.
A cooler pattern will finally develop in the Black Sea beginning this weekend. Freezing temps will be widespread, and lows in the single digits will spread across much of Russia’s Central region. We doubt this will materially affect yield potential, but is noteworthy that the crop’s hardiness to date is rather low given highs in the 30s and 40s so far this winter. The trade will monitor Russian weather more closely moving forward.
Gulf HRW is largely noncompetitive compared to similar EU and Black Sea origin, and so we caution against turning bullish above $4.45, basis March CME. Still, a new price plateau has likely been established, and downside risk is equally limited amid drought expansion in the US. Catch-up new crop sales are advised at $4.70, basis July.
