It is truly hard to believe that we are only six weeks away from the end of 2024. The year has absolutely flown by, and while it has been one of the harder ones I have faced in my position, it has been incredibly rewarding as well. Now that we’re looking face first into the end of the year, I figured it would be a great time to discuss what happens next. Starting this week, I am going to dig into the fundamentals of each market individually. Over the next couple of weeks, we will talk about what is bullish, what’s bearish, and take a look at what I will be watching as we wrap up 2024 and head into 2025.
This week, we will dig into wheat.
What’s Not Bearish?
When it comes to wheat it is relatively easy to list the bearish fundamental factors. A dollar trading at its highest level in over a year does not help US wheat compete in the world market. With the United States already one the more expensive options in the world--a function of seasonality partly driven by a focus on corn and soybean movement at harvest, and by design with the variable storage rate and solid carry not pressuring commercials or farmers to sell—our export sales pace has fallen off slightly over the last several weeks.
While the current export pace is in line with average and is not hinting that we will miss the current USDA target in the least, having already sold over 60% of our book, economics 101 says a stronger dollar is bearish grains—especially wheat.
When looking at wheat demand and a slower export pace, an end user who is relatively covered into the first part of the New Year plays a role as well. Wheat buyers tend to get aggressive at the start of each quarter for their needs, with an exceptional desire to be well covered ahead of the holidays driving some of the run up seen in October. As I have said before, the market is made up of physical buyers, physical sellers and speculators, when we have a lack of buyers in the physical market, price tends to feel aimless, with a move back towards previous lows on the charts not out of the question without a strong speculator presence.
While the physical buyers are on the sidelines for the most part here over the next few weeks, physical sellers are a bit more active. Southern Hemisphere harvest is rolling along with Australia and Argentina both harvesting larger crops than seen a year ago. According to the USDA, Australia’s production is 6 mmt or 220 million bushels larger than a year ago, while Argentina will have around 2 mmt or 73 million bushels more. Australia is competitive in the world market as well, with talk of some bushels being traded into China over the past week.
Russian farmers are said to be exceptionally aggressive sellers as well, as high interest rates make turning bushels into cash the smart approach. As we have seen many times over the past year, farmer selling in the face of slower end user purchasing can pressure a market. The current move back to near contract lows in Chicago wheat is great evidence of what that pressure can do when speculator sentiment tilts bearish.
What About in the Future?
While it is easy to feel as though the bearish shadow currently being cast across the wheat market stays in place for an extended period, one must be careful not to allow price to drive their sentiment too much. Yes, while in the short term wheat has a whole host of factors at play that could limit price gains, there are some very bullish underlying factors that could shift this market in a big way as we look out into 2025 that will need to be monitored. No one can tell us what will happen next between Russia and Ukraine. Biden’s decision to allow for long-range missiles to strike targets on Russian soil could be an escalation no one was really anticipating as recently as last week.
This development could potentially change the situation newly re-elected President Trump will inherit entirely. Situational change or not, Trump coming back into office will likely change the direction of the war as he reduces US support. Unable to turn to the US for billions in continued aid and for the air defense help that has been giving them a chance, their ability to keep fighting as we have seen is lacking without major support from someone else. I’m honestly not sure what this means for Ukrainian agriculture or Ukraine as a whole.
With or without a solution to the war, the area planted and potential production out of the region may be reduced, especially in Russia where fall dryness limited plantings. SovEcon feels a reduction in planted area and a poor start will result in an even smaller Russian wheat crop than seen this year, with a further drop in expected exports anticipated.
Russia and Ukraine weren’t the only areas to deal with fall dryness, here in the US our winter wheat crops got off to one of its worst starts on record. While fall conditions have very little correlation to yields, with much of the importance placed on a lack of winter kill and spring weather, whether the poorer conditions impacted planting plans or potentially could lead to increased abandonment will need to be monitored. The opposite problem was seen again in France, where for the second fall in a row, conditions were too wet to plant the crop at a reasonable pace. Too much moisture and a poor start with no real recovery seen was partly behind France producing one of their smallest wheat crops seen in recent years, something that will likely become more apparent in the world market as we move into 2025.
What Now?
As we look ahead, there are a lot more unknowns when it comes to what happens next in wheat than knowns. While it is very likely we are not going to see China nearly as present in this market as we saw a year ago after they produced a record crop with exceptional quality this past year; smaller, poorer quality crops elsewhere will likely create an interesting market structure commanding a premium for certain quality specifications.
Overall, while it is easy to believe wheat should move lower, especially with continued dollar strength and an expected slower pace to US export business, we must be careful to recognize we are not only likely increasing nearby feed demand in some parts of the world, if prices maintain these types of levels into the spring we could see further cuts to the new crop production outlook.
The lack of clarity beyond the start of the New Year tells me wheat should find support at these levels, or at the very least the downward pressure we have been seeing lately on price should begin to subside.
Next week, we will take a deep dive into corn, looking at what’s bullish, what’s bearish and what it could all mean for price. In the meantime, as always, don’t hesitate to reach out with any questions. Have a great week!
- Wheat: What's Bullish, What's Bearish and What To Watch Next
- Looking Beyond The Hype: What a Second Trump Term Could Mean For The Grain Markets
- What the Election Results May Mean for the Corn and Soybean Markets
- Global Corn Dynamics: Surging US Export Demand, Smaller Supplies And A China Wildcard
