Head of Commodity Strategy, Saxo Bank Group
Summary: CBOT wheat for December delivery has returned to support between $4.9 and $5/bushel. Prices are under pressure from strong Russian exports and a robust USD.
CBOT wheat reached a six-week low today in response to USD strength and increased supply estimates from the Black Sea region, both of which have created a challenging environment for exporters trying to compete with supplies from other regions, not least Europe and Russia.
Following the dramatic $1/bushel surge and subsequent dump between July and September, the contract had been settling into a range a relatively tight range while awaiting news about the size of the US crop and whether Europe and Russia would struggle to meet export demand following a challenging season which saw production in both regions hit.
So far, however, the pace of Russian exports has surprised the markets, particularly considering the constant speculation on whether Russia would limit exports in order to cool domestic prices. So far this has not happened and increased projections of Russia’s harvest and export surplus have raised doubts about whether the pace of export will slow anytime soon.
Such a scenario is not helpful for US producers who also have to deal with the negative impact of the stronger dollar. Additionally, the International Grains Council raised its estimate for global wheat production by 12 million tons to 729 million tons today. The increase largely reflects an improved crop outlook in China. Back in the US, both the trade war with China and subdued prices for soybeans are likely to lead to an increased acreage allocation to corn and wheat next spring.
On that basis, the short-term outlook is challenged with a change in the outlook for Russian exports and a weaker dollar needed to support US farmers' efforts to ship stock.
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