Market perspective

Wheat markets, along with corn and beans, continued their downtrends last week. Speculative funds hold a record short position in Chicago wheat futures and a sizeable position in the corn futures, and there has been nothing lately to make them want to cover these short positions. The weather in July in the cornbelt has been favorable, with most areas receiving timely rains with moderate temperatures. Forecasts call for more of the same. As a result, there has been active cash movement in the corn market from the farm and that has contributed to the decline. Technically the futures have become oversold and are due for some type of correction, but again the question is when.

The pressure from the corn market continues to spill over into wheat. On top of that, cheap prices out of the Black Sea continue to take business away from traditional U.S. customers such as Egypt and Algeria. Other than the 900,000 bu of club wheat sold two weeks ago, Japan still has not purchased white wheat from the PNW since May, as Japan works with USDA toward resolution of the GMO issue. All this is somewhat offset by the fact that overall exports have been very good.

China has been a strong buyer of U.S. wheat this year, with nearly 50 million bu purchased so far. Total U.S. wheat sales for this crop year are over 42% of USDA’s estimate for the year. Also, wheat into the feed channels continues at a strong pace due to the high price of corn. Locally, white wheat continues to be at about a $30/ton discount to corn, at least versus old crop corn. New crop corn, however, is trading at about a $25/ton discount to wheat for October.

The price direction for wheat will be determined by the answer to these three questions. Will the current pace of U.S. wheat exports continue, particularly to China? Will the weather in the cornbelt remain favorable, resulting in a record corn crop and a 2 billion bu carryover? And will the speculative funds continue to ride the downtrend lower in the grain markets? If anyone has the answer to any of these questions, please let me know.

I continue to discuss the impact the corn market has on the price of wheat. Here is a little historical perspective. In 1980, U.S. wheat production totaled 2.3 billion bu, corn production was 6.5 billion bu and soybean production was 1.8 billion bu. In 1990, wheat production was 2.8 billion bu, corn production was 8.1 billion bu and soybean production was 1.8 billion bu. In 2000, wheat production was 2.3 billion, corn totaled 10.4 billion and soybeans were 2.9 billion. For this year, USDA is projecting a wheat crop of 2.1 billion bu, a corn crop totaling 14 billion bu and a soybean crop of 3.4 billion bu. In 1980, the U.S. corn crop was less than 3 times the size of the wheat crop. This year it will be close to 7 times the size of the wheat crop. My guess is that the vast majority of the 35 million acres in CRP came from wheat acres. Also the increase in the use of GMO corn and soybean varieties has led to higher production for the row crops and also more profitability per acre than wheat leading to another shift in acres away from wheat. The result has been a bigger influence by corn on grain prices and a decrease in the influence of U.S. wheat on prices both domestically and abroad.

Pearson Burke watches the grain markets for the Odessa Union Warehouse.