At the end of July estimates of the Russian wheat crop were 71-73 million MT (MMT). As harvest began, the early yields were 7–8% better than last year. As harvest progressed the yields quickly climbed to more than 20% above last year. Estimates are now an incredible 15 MMT higher than those of five weeks ago.
Russian wheat prices dropped as quickly as the crop estimates rose. At the beginning of August the FOB price for 12.5% protein was $196/MT. By month’s end the price had fallen to $181/MT FOB Russia. With export margins widening to $20/MT and the ruble gaining on the dollar, interior prices have fallen below last year’s intervention price. Unfortunately, for the farmers, the government has not made any announcement about domestic price support for this year’s crop.
In the U.S., HRW futures have broken more than $1.60 from their July highs and business has been done to highly competitive destinations like Saudi Arabia, Iraq, and Algeria. In addition, HRW is competitively priced into Texas feed rations. The final piece of support is coming from the very generous carry in the futures market. With one-year spreads trading as wide as a dollar per bushel, facilities everywhere are happy to carry as much HRW as possible.
As we mentioned, the perceived size and condition of the U.S. corn crop has been the key driver of corn futures prices this month. On July 31st only 61% of the U.S. crop was rated good or excellent. The next day FC Stone estimated the national yield at 162.8 bushels/acre. That, fortunately, proved to be the lowest estimate of the year as weather started to improve. Nine days later the USDA stunned the market with an estimated yield of 169.5 in its August 10th WASDE report.
That government report sent prices sharply lower and helped trigger the other major bearish element in the market, farmer selling in the U.S., Brazil and Argentina. The South American corn crop was a record and farmer selling rates had been historically low, leaving them with significant ownership. The U.S. situation was almost identical and many farmers were facing deadlines from elevators or pressure from lenders to sell their old crop corn. Unfortunately, it appears that we’ve repeated last year’s experience, where farmers facing an August 31st deadline helped establish a futures contract low on that date.