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Wheat Poised for Weekly Slump As Supply, Demand in Focus

August 30, 2019 at 12:57 by Andrew Moran

Wheat futures are on track for a weekly decline as investors are concentrating on the latest supply and demand data from key markets. The slump in wheat prices comes as the US and Japan reached a tentative trade deal that would open up Tokyo’s agricultural sector to American goods, including corn and wheat.

December wheat futures fell $0.0575, or 1.22%, to $4.67 per bushel at 12:47 GMT on Friday on the Chicago Board of Trade (CBoT). Wheat is poised for a drop of 2.5% this week, lifting its year-to-date losses to just under 8%. Over the last 12 months, the agricultural commodity has plunged 15%.

Last week, President Donald Trump and Prime Minister Shinzo Abe announced that they reached a new trade deal, a development that surprised analysts because more had anticipated a drawn-out negotiation, akin to the prolonged dispute between the world’s two largest economies. A key aspect of the agreement, which is scheduled to be signed next month at the United Nations General Assembly, is wheat.

Japan will open up its agricultural market to US agriculture, which will generate nearly $10 billion for American farmers. Wheat and corn are the big winners; corn is needed to tackle the nation’s pest problem that has infected domestic output and wheat is needed to satisfy demand.

With domestic output expected to rise, other markets may contribute to the gradual supply glut, too.

Despite Statistics Canada forecasting larger-than-expected drops in canola and wheat, analysts are predicting that output will be much better than what the Canadian governments estimates. The big reason for this is favorable weather that is allowing farmers to boost production.

Officials say wheat output will slip 2.9% to 31.3 million tons, but analysts think production will rise to 32.4 million tons.

Mexico is also anticipating better-than-expected output, notes Global Agricultural Information Network report from the US Department of Agriculture (USDA). According to the USDA, favorable weather patterns prognosticate output to top 3.3 million tonnes in the 2019–2020 season, up from three million tonnes in the 2018–2019 season.

The composition of imported wheat origins changed slightly in 2018–19 as imports from the United States increased compared to a year earlier, while imports from other origins such as Russia and Ukraine declined. Mexico has diversified its sources of wheat over the past several years, with secondly suppliers varying depending on price and quality.

Russia’s wheat exports season has been slow this year, mainly because the government is projecting a smaller crop. This has encouraged farmers to postpone sales in the hopes of receiving higher prices later. Profit margins have also slipped for exporters, mostly due to the fierce competition. The trend, however, has benefited Ukraine, which has reported a dramatic surge in production.

Overall, global wheat production is recovering, but industry insiders say it will be a slow one because of cooler-than-normal temperatures in the autumn.

In other agricultural markets, November soybean futures rose $0.05, or 0.63%, to $8.74 per bushel. October corn futures added $0.0125, or 0.34%, to $3.725 per pound. November orange juice futures edged up $0.005, or 0.46%, to $1.085 a pound.

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