Protein-level makes all the difference in wheat futures

28.11.2016

It has been a tale of two grades in wheat, as the expiring Chicago December wheat contract slumps, while December Minneapolis spring wheat rallies, telling a story of ample global supplies but questionable quality.

There's no doubt that this season's harvest is a big one, with the IGC this week increasing its estimate of the global wheat crop to a record large 794m tonnes.

But big crops often mean lower quality, as so it has proved this year, with disappointing protein numbers in Russia and the US.

Spring wheat gains on soft red winter

December Chicago wheat futures, which are of a low grade usually used for animal feed, fell sharply ahead of expiry, indication sluggish demand.

The expiring December contract has plummeted against the March contract over the past three sessions, and is now at three-month lows.

But in Minneapolis spring wheat, the opposite effect was seen, with the expiring December contract rallying to its highest level against the March contract since the summer of 2015.

Minneapolis wheat is the highest quality traded wheat, and the strong expiry paints a picture of a squeezed market for high-protein supplies.

The premium of December 2016 spring wheat to December Chicago has risen by some 20 cents a bushel in the last three sessions, and stood at a contract high of 137 Ѕ cents a bushel in late-morning deals.

Protein shortage

James Bolesworth, director at CRM AgriCommodities, told Agrimoney the strength in front month spring wheat "really comes down the fact that we're seeing a shortage of higher quality wheat".

He saw the difference in calendar spreads for the two contracts "highlighting the squeeze in the quality market on the global scale".

"We're waiting to see if Australian and Argentina can fill that quality gap this campaign," Mr Bolseworth said.

In Australia "there are concerns over protein," thanks to heavy rainfall in some areas.

And there are similar concerns in Argentina," Mr Bolseworth said.

December spring wheat futures were up 1.2% in late-morning deals in Minneapolis, at $5.33 ј a bushel.

Most-traded March spring wheat futures were up 0.6%, at $5.29 ј a bushel.

Good export sales can't save Chicago

Wheat US export sales came in very strong, at 712,400 tonnes, compared to forecasts of 350,000 to 550,000 tonnes.

But December Chicago wheat futures were down 1.1% in late-morning deals, at 3.97 ј a bushel.

March Chicago futures, the most widely traded, were down 0.5%, at $4.21 ѕ a bushel.

Soybeans still defy cash markets

"Soybeans can't run from the weak cash markets forever," Tregg Cronin at Halo Commodities said.

But good exports kept prices up, at least for the day, as export sales in the US bounced back after the disappointing previous week.

Sales were reported at 1.90 tonnes, compared to expectations of 1.20 to 1.50m tonnes.

January soybean future were up 0.9%, at 10.43 Ѕ a bushel.

Front-month corn slumps

US corn exports were also strong, at 1.69 tonnes, well ahead of the estimates.

But expiring December corn futures were down by 0.4% in late-morning deals, at $3.49 ј a bushel.

March futures, the most traded contract, were down 0.3%, at $3.58 ј a bushel.


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