April 2015 Month End Grain Comments
Wheat was the most volatile agricultural commodity this month. It enjoyed a 15% trading range and ended the month down 8%. The month opened with winter wheat exiting dormancy in marginal condition and with dry conditions in Eastern Europe, the FSU, Australia and the western U.S. The market was also dealing with a steep export tax in Russia, instituted to stem high bread prices and domestic inflation. Fortunately, the weather turned favorable in all of the key producing areas, and a lifting of Russia’s tax now appears to be a certainty.
Even with an 8% drop in our futures price and a 15-25¢ drop in the FOB basis, U.S. wheat is no more competitive now than it was a month ago. Russia has retaken its position as the world’s low price setter on both milling quality and feed quality wheat, followed closely by Ukraine and the EU. The Russian crop, once feared to be sub-50 million metric tons (MMT), is now estimated to be equal to last year’s 59 MMT crop.
For May the price of wheat will key off of the following: The timing of the lifting of the Russian tax; the finishing weather for northern hemisphere wheat; and pre-dormancy rains for southern hemisphere wheat. There is a record speculative short in Chicago wheat futures, but the market has adjusted to this new reality and the weekly confirmation of that position via the Commitment of Traders report is no longer considered a reason to rally.
The corn market was calm by comparison to wheat, but it was clearly being pulled lower by wheat. Cheap feed wheat around the world is cutting into corn demand for positions from May through December. Late summer feed wheat in the Black Sea is priced close to $170/MT, virtually the same price as corn. Among the major feed grain importing countries, South Korea is the most flexible. They are open to almost every exporting country and will buy feed wheat any time it is priced within $15/MT of corn. They are currently buying Black Sea feed wheat for this summer and Brazilian corn for this fall. This will be a problem for the U.S. at harvest as our corn is $25/MT more expensive than Brazil for October through December.
A second problem for the corn market is the bird flu epidemic in the Midwest. More than 20 million birds have already been culled, and there are new reports of infections on a daily basis. Experts had predicted that new cases of the flu would end when temperatures warmed and the northern migration of wild birds ended. Unfortunately, that has not been the case. The total loss of feed demand for corn and soybean meal has been relatively modest on a national level, but the steady stream of new reports has been psychologically bearish and some distressed spot meal has traded at discount prices. Any bird complex that has a positive test result is forced to kill its entire flock and most will then cancel or roll forward one to two months of feed purchases.