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The cash basis remains strong across all markets as harvest delays, logistics and lack of transportation forcing exporters and domestic mills to push their nearby bids.  The river system is basically closed down. This is forcing exporters to buy/ship more expensive trains and shippers who have barge commitments have to substitute more expensive trains to fulfill those commitments.  The delay in loading of vessels at the Mississippi River ports is pushing demand to the East Coast ports & the Great lakes. We’ve seen trades of SRW fob Toledo which is now forcing domestic mills to come to the market & paying premiums to the export market to get coverage. We’ve asked for weeks why these SRW mills have been sitting on their hands in face of deteriorating crop condition ratings and record rainfall.  We’re starting to question the yields/production of HRW after record rainfall in May & early June days, but no one on the ground seems concerned.  Could we see a similar surprise to 2016 French harvest, no wants to believe it.  The early harvest in Texas and SW Oklahoma suggests record yields are in order but yielding a low protein crop.  The Northern Plains are starting to show signs of stress from lack of rainfall and growers/shippers are getting bullish when yesterday they wanted to sell at $5.00/bu. The same is true in Canada for Canadian growers/shippers. PNW exporters fell on the knife to sell Japan and CCC SWW tender last night. Exporters sold CCC / Yemen; 58.4 kmt early July traded $227.43/mt, LH July traded 33 kmt at $224.87/mt, and 24.8 kmt at $226.34/mt fob PNW.  Japan purchased their 2 cargoes last night for August shipment.  We believe Malaysia and Philippines buyers purchased cargoes for August shipment, 45-50 kmt & 60 kmt tonnage estimated for NS and WW combo cargoes.  All total we estimate 275 kmt was sold from the PNW this week.

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Oklahoma Grain Convention pegged 2019 wheat production at 121.35 mbu, up from 70.0 mbu last year.
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Cash markets today are just a repeat of recent days; growers are selling on the rally and there is no export or domestic demand for the nearby. Exporters, resellers and domestic mills are supporting the deferred cash markets, but everyone is plugged for August. There is not bid for August HRW trains at the gulf and the domestic HRW market closed down 5-15 ct/bu today on the spot market. The domestic spring wheat closed down 25 -40 ct/bu with 4 trains offered and some of those not trading. The PNW market continues to see some business with Japan and the Philippines tendering tonight for October- December shipment. The SRW market has an easier tone in the export and domestic market, but no real definition. The mills are full in the Aug./Sept. positions but trying to buy the deferred months, while the CIF market just struggles with lack of demand verse lack of #2 grade.

Traders/analyst debate how USDA will adjust the world wheat balance in the August report. The expectation is USDA will cut world wheat production 5-8+ million MT and will be offset by a 2-3 million MT cut on the demand side. The other question is how will USDA shuffle the domestic feed and residual verse imports of corn or further draw down of wheat stocks.

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The latest HRW protein update shows northern Colorado averaging 11.8%, southwest Nebraska averaging 12.99%, and southeast Nebraska averaging 14.0% protein.

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Resellers/mills are saying it is easier to buy wheat from shippers this week & cash markets are starting to see a few more offers in the winter wheat markets. A few shippers are starting to think about making space as they finish harvest. This isn’t a lot of wheat, but since there isn’t a lot of demand the market may feel it. The interior basis values have stopped going up as well, now that growers have delivered the wheat to the elevators. HRW cash basis has an easier tone at the gulf, but the domestic market closed up 1-4 ct/bu and one mill continues to support the market. SRW barge market saw more offers, but the higher basis brought out some offers July thru September. HRW & SRW exporters said they were getting some quires today, but no confirmed trades. The domestic spring wheat market closed down 15-20 ct/bu on the spot market with more cars offered for sale. Shippers have to be thinking about making space for this massive spring wheat harvest. The PNW market saw Japan announce a small tender this week, only 28.5 kmt US wheat & 34.3 kmt ASW, but the break in flat price has others asking for quotes. The PNW cash basis is called unchanged & SWW basis went up with the drop in futures.

Despite the sharp break in futures, HRW is still $8-$10/mt away from buying demand or even cutting off Russian exports to Mexico/LAM. Sources suggest there is 100+ kmt /month Russian wheat on the books to Mexico for August – December shipment. I don’t know if HRW shippers actually care today since they are focused on harvest. Traders who think CME or KCBT need to rally because the EU/FSU balance sheets suggest wheat demand will be rationed to the USA, this is true but the timing is everything. Winter wheat harvest in the USA is better than 60% complete and grower sales are 50%+ in those areas that are finished. Perhaps the harvest pressure has peaked for winter wheat, but it hasn’t started for the spring wheat.

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The latest U.S. Drought Monitor indicated 33% of winter wheat production and 27% of spring wheat production is in an area impacted by drought.

Source: http://droughtmonitor.unl.edu/CurrentMap.aspx

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It’s rare to have the cash market and the futures market so strong, when in fact there is no demand. This is acting like a demand pull market, when it is all about supply. The US is rationing demand faster than it may be losing supply. Today’s headlines were: India increases the wheat import tariff from 20% to 30% (cut world demand 1.5-3.0 mmt) Australia forecast 1-2 inches of rain in WA & SA http://www.bom.gov.au/jsp/watl/rainfall/pme.jsp, rain forecast for N. Plains & Canadian Prairies http://wxmaps.org/pix/prec2, record amount of spring wheat seed has been sold in the N. Plains, Indonesia will import 50% of their wheat imports from FSU. The only bullish news today, which I only read in a commission house recap, “USA talking about enforcing a 2001 WTO agreement with China to import 9.0 mmt of wheat, which has never been enforced”.

The rally in futures is starting encourage growers to sell bits/pieces of old and new crop wheat. The HRS growers in N. Plains have sold more than others & this is starting to hit the cash markets. Any selling of HRW or SRW by growers is being held by shippers to capture the cash carry. There are more reports the HRW crop hasn’t gotten bigger with the rain over the past few weeks, but there is more wheat being cut for hay. The rain was too late to do more than hopefully add some test weight. The SRW states are concerned about too much rain in the SE causing fusarium, test weight problems. WPAGW, spring wheat area is equal or greater than USDA’s March-1 intentions with potential for 550 mbu crop and 280 mbu c/o (52% stock/use). Exporters were seeing enquires from SE Asia & LAM buyers late last week, but those buyers have not been willing to follow the futures market rally. If there is anything bullish, its the weather concerns Australia/Canada/HRW/FSU/Eastern EU. FSU wheat is the cheapest wheat in the world. The origin that sets world wheat prices should be trying to ration demand to EU and one day the USA. Perhaps the reason for the rally in US futures is unwinding of Matiff/USA & Russia/USA futures spreads. Someone said today, “We don’t have a shortage of wheat, we have a shortage of futures.”

Despite the rally in futures, HRW basis was up sharply as traders worry about small crop in TX/OK & demand for storage wheat has shippers buying back their June/July sales. Domestic traders and exporters are looking for offers in J/J shipment positions. SRW market has everyone waiting for harvest quality with the cif and domestic markets are all bids and no offers. Domestic spring wheat market saw more cars/trains offered for sale today thanks to improved car placements, with premiums closing mixed, from down 5 to up 25 ct/bu. Mills were eager to fill gaps in the pipeline before the long weekend. PNW exporters said they were buying more wheat today on the rally in futures than they’ve seen in several weeks, with majority coming from HRS growers/shippers.

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Freight & logistics continue to be the driver for old crop cash wheat with buyers hitting the limited number of bids at the gulf for HRW. Domestic HRW basis closed up 1-4 c/bu today. The SRW barge market came off an 8 ct/bu today in old crop on weaker barge freight & new crop J/J saw sellers hit the bids as well. The domestic SRW market had NW Ohio mills raise their bids today 5-10 ct/bu to +20 WK8 while to Toledo warehouse bid is +5 WN8 for A/M/J. The domestic spring wheat market traded down 30 ct/bu after yesterday’s 35 ct/bu up tick. The PNW market had a good run of business this week & the CCC tender for 40 kmt NS 14% protein traded at $306.00-$332.89/mt because the position was May 21-31, where exporters have limited export capacity. Despite the enormous price cash basis is unchanged on the bids, although exporters would pay much higher values for offers in the Apr/May positions.

The export sales report was worse than expected, old crop was actually a negative 67 kmt, & only 240 kmt were sold for new crop. Nearly all of the business was off the PNW & some of the old crop cancellations were rolled to new crop. The gulf market is doing virtually no business over the past few weeks, while the PNW still has its traditional buyers, thank GOD.

The bloom is off for MGEX with chatter some growers are talking about getting into the fields in MT. this weekend. Warmer/dryer weather is the theme & expectations the March 1 planting intentions are closer to the truth today than they were at the end of March when the report was released. Last week prices were testing those of March 1, when the survey was taken. The same was true for the MWU-CU & MWU-SX spread. The focus is back on HRW conditions & harvested area/yields, with a huge range of estimates & some discussion on whether Kansas production could be only 200 mbu or less. There are more & more reports of freeze damage in KS/OK/TX showing up on top of the impact from the drought.

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The cash markets were dead with HRW traders making their way to the Kansas Grain Convention in Wichita & trying to determine the amount of damage/loss from this weekends’ freeze & lack of moisture. The gulf market was not spoken but the Kansas City domestic market closed up 10 ct/bu on 11.4-11.6% protein. SRW was not well defined since there are no offers. The domestic spring wheat closed down 35 ct/bu on a train of 13% protein after trading sharply higher last week. The PNW was buying bits/pieces of wheat across all classes on today’s flat price rally. The Northern Plains is the area where growers still have 30%+ of their wheat left to sell.

There were temperatures into the low 20’s along the OK/TX southern border and into the low teens in the OK and TX panhandles. There was damage but no one knows how much.  Wheat was 50%+ jointed in TX and OK panhandle, headed in the western 1/3 of OK, and boot or heading along the southern border. No one knows how much the loss could be, but with temperatures into the low 20’s in the Red River Valley and 57% of OK jointed.  This could result in moderate to severe damage according to Kansas State. However, we’ve seen this is the past and with cool/wet weather the plant can re-tiller and still have an average or above average yield. There is an estimated 25 mbu in the coldest areas of OK and 25 mbu in TX that saw temperatures into the low 20’s in the south and teens in the norther regions.

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Today’s futures rally is not buying us any export business, but Russia wheat was up $3-$4/mt today & Matif was up $3-$4/mt as well, so no real damage. The cash markets were mixed as traders were cutting their HRW production estimates after USDA’s crop condition ratings yesterday PM, the gulf traded up 5+ ct/bu on 11% protein in the old crop. The domestic HRW market was down 10-20 ct/bu but traders didn’t think it would stay down more than a few days, while deferred offers were 15-20 ct/bu above the spot market.  There only a few cars on the domestic spring wheat market which traded down 15 ct/bu on the high side of 14% protein & up 5 ct/bu on 15% protein. The PNW is called unchanged despite not buying any wheat on the futures rally and Japan announcing they’ll tender for 1 cargo this week of WW/HRW.

We played with crop estimates on HRW and acreage estimates on HRS today after talking with various sources in the country. We cut our HRW production about 20 mbu after adjusting for lowering yields in a few OK/KS/TX crop reporting districts; our HRW estimate is 605 mbu. We’ve heard ranges from 585 mbu to 650 mbu, with the high side not willing to throw in the towel yet.   Other spring wheat planting intentions were higher than anyone expected and almost everyone saying it is too early to predict the final. However, we’ll make a best guess today which cuts the March 1 intentions 450 k acres. We’ll assume cutting MN and ND back to 2016 planted area which is an increase of 12% above last year.

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