Is The Wheat Market Getting A Little Bit Ahead Of Itself?

07/10/13 -- Yes, I know that world demand is good for wheat at the moment, but it needs to be with a record crop to place. Will it stay so buoyant once the impending record world corn harvest is in the bin?

Whilst everyone is getting very excited about slow winter wheat plantings in Ukraine and Russia, nobody is mentioning that European plantings are running well ahead of schedule.

FranceAgriMer said Friday that winter wheat plantings there were 9% done as of Sep 30 versus 3% complete a year previously. Winter barley was 16% done versus only 4% this time last year. Certainly things are much more advanced than they were here in the UK too, and establishment is looking very good indeed. Last week's rains followed by the current warm temperatures won't be doing any harm either to get the crop looking in great shape ahead of the winter.

Incidentally, the weather forecast for the Black Sea countries is now much more benign. My agronomist chum Mike Lee in Ukraine says on Twitter this morning "Dry, warm & plenty of soil moisture, forecast for settled two weeks, wheat planting currently going flat out." What a difference a weekend makes, as any West Ham fan will tell you.

The Ukraine Ag Ministry forecast on Friday that corn plantings there will rise sharply again in 2014, up 700-900,000 ha to 5.5-5.7 million ha. They are already expected to have a record crop in 2013, and domestic prices are said to be below the cost of production for all but immediately available corn to fill up waiting vessels.

Meanwhile the Ukraine Ministry said that wheat production next year could fall by a third to 15 MMT.

What would you do if you were a Ukraine farmer? Plant winter wheat if at all possible, I'd say.

It's funny too how the market choses to focus on what might happen in Russia and Ukraine next summer rather than what has just happened in Canada this year.

In the US meanwhile we have a situation, starved of data as we are, that we can only go on anecdotal reports from the field. They say that US corn yields are probably higher than the USDA's current 155.3 bu/acre.

Informa now say 158.8 bu/acre. Linn Group 159.4 bu/acre and FCStone 157.8 bu/acre - the lowest of the three being 2.5 bu/acre better than Washington's last stab in September.

If the USDA finally concur, whenever it will be that they eventually re-open, it could/should put corn under further pressure. Remember that the seasonal low in corn doesn't usually come until later in the year:

CBOT wheat could ultimately have a tough time attempting to knock on the door of USD7/bu with corn staring at the trap door of USD4/bu.

In Europe, we have a similar situation looming. The flood of anticipated "cheap as chips" Black Sea/Eastern European corn has yet to fully arrive onto the market. Harvest pressure for corn isn't really upon us yet. Ukraine have currently only harvested 6.2 MMT of corn out of an expected 26-29 MMT crop and further west France have yet to begin on their crop.

Note too that Coceral's crop numbers released Friday included huge corn production increases coming from infamous discount sellers like Romania (up 79%), Hungary (up 46%) and Bulgaria (up 39%).

I'm not saying that I'm bearish wheat longer-term, but an imminent slew of cheap corn from these areas and the US could mean that a correction in the wheat market is overdue.