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Working out the global wheat market

Soft white wheat is only bright spot in outlook

April 2019
By Trista Crossley


According to Darin Newsom, when you talk about wheat, you can’t just talk about U.S. wheat, because out of all the grains, wheat is the most global market of all.

“There’s always a major wheat crop hitting the market somewhere in the world,” he explained. Newsom was the guest presenter at one of February’s Agricultural Marketing and Management Organization (AMMO) seminars. Newsom is a former senior analyst with DTN/The Progressive Farmer. He now owns his own marketing company. “The bottom line is the world is oversupplied with wheat, and there’s a lot of competition out there. Everybody is growing wheat.”

Newsom advised growers to watch the stocks-to-use numbers from the World Agricultural Supply and Demand Estimates (WASDE) to know if the market is bullish, bearish or neutral. The higher the ending stocks to use is, the more bearish the market is. And right now, he added, that number is about the highest it’s ever been.

China is often heralded as the wild card in the wheat market as the country reportedly holds nearly half of the world’s wheat stocks. If you take China’s numbers—stocks and demand—out of the equation, Newsom said he didn’t think it would change anything. He also cautioned growers to take the WASDE numbers with a grain of salt, saying that the U.S. Department of Agriculture isn’t very good at predicting even the U.S. stocks.

“If we can’t predict in the U.S. with data that is openly available, how do we ever guess what China has? What Brazil has? We don’t really know,” he said.

Newsom doesn’t see the overall price of wheat changing much in the near future, however it could be worse. Thanks to weather in South America, specifically drought in Argentina, U.S. agriculture is in a slightly better position then it might be otherwise. He said this year’s spring crop is relatively neutral in terms of the market, and hard red wheat doesn’t look overly good to him.

“What the market is showing about fundamentals, it’s hard to get excited about the major classes of wheat, except for soft white wheat. The only class of wheat outdistancing the previous year is white wheat,” he said. “It’s the least ugly dog in an ugly dog contest.”

Newsom also quickly touched on the corn and soybeans markets. He is bearish on soybean old crop, saying he thinks the U.S. has a lot of beans on hand. Corn, on the other hand, has continued to see strong demand, but “corn is boring. It doesn’t matter what the ending stocks are, the corn price doesn’t change.”

The AMMO seminar ended with Newsom explaining his seven rules of marketing:

• Don’t get crossways with the trend. Most markets have two sides, noncommercial (investment, speculative, etc.) and commercial (those involved in the cash market). The trend is price direction over time, and the trend of the futures market shows the flow of noncommercial money. If you stay in step with the trend, you’ll be in step with noncommercial side, and they have more money.

• Let the market dictate your actions. The commercial side of a market is the real supply and demand. You know what they are doing by looking at futures price spreads and then looking at the trend. In grains, you can use the percent of calculated full commercial carry. There’s also basis or the relationship between cash and futures.

• Use filters to help limit risk. An old saying is, “margin calls can be the death of the best marketing plan.” Timing is important, and seasonality—how markets move over the course of a 12-month period—should be considered. Look for the market to be in the upper 1/3 to sell, and if you want to buy, try to hit the lower 1/3. Volatility, or how fast and far a market can move over a period of time, acts as a multiplier on time value and helps determine what a better strategy might be (options, futures hedges, cash forward contracts, etc.).

• A market that can’t go down won’t go down. Another old saying is, “it doesn’t pay to be right if the market is wrong,” and the market is never wrong. Market corrections are an overused cliché used to explain the unexplainable. The market, in its entirety, knows more than we do.

• It’s the “what” not the “why.” Much of what passes for market commentary is just noise. We never really know the “why,” but we can always tell the “what.” Remember, the market knows, and the market moves. We can read its moves without knowing why it moved.

• Fundamentals win in the end.

• The stock market goes up over time.