International

The beat goes on. Chicago wheat’s main purpose is to inflict as much pain on as many people as it can – and right now, that’s lower. The fundamental side of the market has been catching the falling knife for well over 50c/bu now, rightfully focusing on global inventories, Black Sea production cuts and challenging conditions in EU. However, Chicago wheat is a domestic US contract, and things look good. Plain and simple. Between the US and Canada, production ideas are in the rise and harvest pressure is the bigger influence. The conundrum is that Russian FOB has only lost US$1/t since Tuesday while SRW futures have lost over $16/t. Matif wheat vs Chicago wheat has moved to $30/t over, a recent record for this time of the year. Things are stretched. Logically, either one is too expensive, or one is too cheap. Given we haven’t seen global wheat ending stocks this tight since 2007/08 many suggest this means Chicago is too cheap – then it drops another one or two percent. 

We cannot underestimate the order flow in Chicago wheat. There is no doubt the short calendar spread trade was crowded. Then, test weights started coming in well below the deliverable min and the “guarantee” of a VSR expansion was tested. Busting a bunch of the discretionary capital out of a spread trade doesn’t generally encourage more investment in flat price ownership.  

When I had hair, I was told that supply rallies are short lived and demand-led rallies last significantly longer. That seems to be holding true today. Indian import tariffs have been expected to be abolished or at minimum, reduced but now it seems everyone has given up. Internal Indian wheat values have been firming since early April, suggesting things are tight. It is worth noting however that rice stocks have somewhat compensated for the tight wheat stocks. Outside of India, demand has been patchy. Turkey putting up the shutters was certainly a gut shot to the bulls. Additionally, IKAR adding tons to Russian wheat production was the answer to the question that no one was asking. 

The June US stocks and acreage report is a banger. Over the last 10 years, corn and beans have only had 2 years over the last 15 where the move wasn’t over or under 10usc/bu. With Prevent Plant insurance payouts similar to the cash market at the time during South Dakotas planting window it could lead to lower corn acres.  

Next week we get StatsCan acreage estimates. April was indicating the highest spring wheat acres since 2001 excluding 2023.  

China has been quietly scooping up wheat, importing 1.84 million tonnes (Mt) in May, the second biggest month since at least 2013. France was the largest supplier, followed by Australia then Canada. Despite this pace, the USDA has them taking less wheat in the next marketing year. In fact, according to the USDA, Vietnam, China, South Korea, Indonesia and Philippines combined are predicted to take 4Mt less in 2024/25. Interestingly this will lead to lower ending stocks in all of these countries apart from Vietnam.

Australia