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Russ Winter’s Notes on Wheat

These are my notes on wheat specifically. Commercials (smart money) has gotten very long and bullish wheat futures. This data is from last week Nov. 29 and is likely even more lopsided bullish in next Friday’s report. This reminds me of silver at the $17 handle a few months ago.

If you are a market player and choose to play this through the WEAT instrument (Teucrium Wheat Fund) be aware that on Dec. 13 the fund will roll out the March futures to July.

Since the July trades at about 18 cents contango (2.44%), the fund will incur a loss on this. Use after the roll spread narrows or clears starting Dec. 14.

Prices of wheat are well off their high, perhaps reflexing the rather aggressive speculator/funds lean or attack. Or there is magical thinking that the large stocks hoarded in China are available for western consumption.

Global wheat stocks/use ratio (including China) is projected at 34%. That’s about average. The USDA estimates global wheat ending stocks will be 267.54 million metric tons (MMT). The average analyst estimate is 267.9 MMT.

Remove China from the equation and the stocks/use ratio falls to a concerning 19.2%.

The planet can ill afford even stagnant wheat production, as worldwide consumption and population growth pushes ever higher. It does have a Malthusian look to it. Trade is essential to smooth this out.

Chinese wheat imports have averaged approximately 5% of the world market over the past three years, a rate that is roughly double the previous three-year average of 2.27%. Much of this comes from Russia.

Regardless of the amount, the wheat that is in China is not leaving China. With this understanding it makes sense to analyze the global wheat balance sheet excluding China.

One potential explanation is that the official numbers are wrong and that China’s wheat balance sheet is not as healthy as it looks. The imports may be making up the difference between demand and actual supply. If true, then the global wheat supply is much tighter than it appears.

It’s clear that China is not in a position to export wheat. The wheat that is in China is staying in China.

Another explanation, assuming the official numbers are accurate, is that China is aggressively building wheat supplies. I believe this is the reality. Stocking food reserves is a prudent strategy in normal times, perhaps even more so today given overall geo-political uncertainty, de-dollarization, and heightened tensions between China and the US over Taiwan.

US: The USDA estimates wheat production will be 1.650 billion bushels which is a 133 million bushel decline versus last month. The USDA estimates total wheat usage of 1.863 billion bushels down 80 million bushels month-over-month. This marks the 6th crop year in a row that wheat usage has exceeded production in the US. US ending stocks are at the lower end of the range.

We just learned that Canada’s 2022 production has been downgraded.

Current growing conditions for US winter wheat are not promising. Select States- Good-Excellent 11/27- 34%  10 year average: 51%, Select States Poor- Very Poor 11/27- 26% 10 year average:  15%

Weather in the United States is hampering transport. According to American Farm Bureau Federation, low water levels in the major rivers have resulted in lower draft allowances for barges, which limit the volume of goods a barge may carry. As a result, the season has seen a reduction in cargo of over 20% per barge on the Mississippi. Such a reduction per barge means more barges are needed to transport the same amount of cargo, resulting in record high barge rates.

Satellite-based production numbers for the 2022 winter wheat crop in Ukraine make it clear that farmers had a largely successful harvest,” said NASA Harvest program director Inbal Becker-Reshef.

Analysts calculated that farmers throughout Ukraine harvested 26.6 million tons of wheat this year, which is several million tons higher than forecasted. This is just under the five-year average of 27.9 million tons.”

A whopping 22% of the wheat was harvested in the Russian-occupied east. That’s about 5.8 million tons worth at least $1 billion, according to NASA Harvest partner Abdolreza Abbassian. HarvEast, a principal Ukraine agricultural firm, tells Bloomberg that all of the winter crops it planted in Donetsk were harvested and sold off by Russia.

Other factors.

Update on the Winter is Here post;

The number of liquefied natural gas (LNG) tankers idling off Europe, waiting for regasification terminals, has significantly decreased by 30% from this year’s high, according to data from S&P Global Commodity Insights. That’s causing concern that supplies could become an issue if winter is severe.

Dec 2 (Reuters) – Freeport LNG on Friday again delayed the restart of the second-biggest U.S. liquefied natural gas (LNG) export facility, moving its forecast for resuming processing to year’s end, pending regulatory approval. Freeport LNG shut the Texas plant on June 8 after an explosion and fire that energy consultants said resulted from inadequate operating and testing procedures, human error and fatigue.

WW takeaway: Freeport LNG expects to ramp up in a slow and deliberate manner, even if the latest timeline is accurate, it will not reach 85% nameplate capacity until sometime in mid-January.

Biden’s depleting piggy bank.

 

 

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