Nov. 17 news that Russia will allow an extension of the Black Sea Grain Initiative was seen as a bearish feature that weighed on North American wheat prices, along with U.S. dollar strength, although European traders did not see it the same way.
On Monday of this week, December European milling wheat broke below the support of the 61.8% retracement of the move from the contract's August low to October high at EUR 325.60/metric ton. December Matif wheat reached its weakest trade since Aug. 26, or almost 12 weeks on Nov. 17, only to close EUR 4.75/mt higher for a second consecutive higher close. Today's trade resulted in a bullish outside reversal, trading both lower and higher than the previous session's range, while filling a bearish gap in trade formed earlier in the week. While not shown, today's trade broke through a short-term downtrend line drawn from the Nov. 1 high.
The first study shows the Dec/March spread strengthening by 3 Euros to EUR 4.75/mt on Thursday, the highest seen since Aug. 9. While not shown, the March/May inversion also strengthened this session, with the forward curve signaling front-end demand.
The blue line on the lower study shows the European milling wheat /Chicago milling wheat spread in U.S. dollars/mt. This spread is seen at $40.74/mt USD at the time of today's European close, the widest spread seen since Sept. 1. During the past five years, this spread has averaged $29.36/mt on this date, which could be viewed as supportive for the most active North American wheat contract.
The continuation of the Black Sea deal was widely expected and seems bearish in the short term, although there are details left to work out in terms of Russia's exports of grain and fertilizer. President Vladimir Putin did not like the previous deal, there were intentional bottlenecks due to a lack of inspection capabilities and there is a good chance that the deal will continue to face a lack of cooperation by Russia.
It is also worth noting that the November World Agricultural Supply and Demand Estimates (WASDE) report points to the tightest U.S. wheat stocks in 15 years in 2022-23, while global stocks (excluding China) are also forecast as the tightest in 15 years. Dry conditions in Argentina and wet conditions across Eastern Australia are to add further challenges to the global balance sheet.
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