Market Perspective

By PEARSON BURKE

Wheat markets continue to consolidate. On the charts, Chicago wheat has formed a double bottom; we will see if that holds. If so, then the downtrend has been broken and at least a sideways pattern can be expected. From a seasonal standpoint, the wheat market is due for a break from the selling that we have seen for the last 3 months.

Fundamentally, last Tuesday's USDA Crop Production Report changed U.S. wheat carryovers for next year only slightly. But world wheat carryovers were raised 3.5 million metric tons from last month mainly due to increased production for Russia (+6 mmt) and China (+2 mmt). Wheat markets moved lower in the aftermath of that report, but since then markets have consolidated. Rains have continued to hamper harvest in Europe and the quality concerns have now spread from France and Germany to Russia and the Ukraine. While there is more wheat in the world, the amount of milling quality wheat has actually declined.

Also an increase in tension between the Ukraine and Russia once again got the attention of the markets. A resolution to that conflict does not appear to be happening anytime soon. In addition, sanctions against Russia are having an impact on their banking system with interest rates rising, and farmers there are having more difficulty getting credit and forcing them to sell this year's crop into the market. Once this selling pressure backs off, the world wheat prices should stabilize and rise.

El Nino does not look like it will have a major impact on Australia this year. Now through September is a critical time for the Australian wheat crop, and problems could still develop, but so far El Nino has not been too severe. The monsoons in India, which were late, finally showed up over the last two weeks and now flooding there is a bigger issue than drought. Overall the wheat crop in Australia looks decent, but there have been no upward revisions in production estimates yet.

Locally this year's wheat crop got smaller as it progressed and that was true throughout the PNW. USDA lowered overall white wheat production by 5 million bu from last month's report and further downward adjustments can be expected. U.S. white wheat production is now estimated to be about 25 million bu less than last year. Even without a significant drop in Australia's wheat production, the fundamentals for white wheat this fall remain good. The pace of export sales for white wheat remains ahead of USDA projections and concerns about next year's crop should help support white wheat prices this year. I still would like to see where wheat markets are at come this October.