While there's a great deal of negative news in global wheat markets, with current estimates suggesting both a record global production and record global ending stocks, basis levels in the United States remain at average levels. The attached chart plots basis levels as calculated by the difference between the front-month MGEX contract and DTN's National Spring Wheat Index, with the green line, or the 2015/16 basis, tracking closely with the five-year average basis, as indicated by the blue line. At 37 cents under the nearby December contract, this basis is 2 cents stronger than last week and 1 cent stronger than the five-year average.
As reported by DTN Analyst Mary Kennedy, mill demand in the U.S. remains strong, with U.S. producers focused on harvest and not on delivering grain. As seen in the most recent Crop Progress report in the U.S., 86% of the soybeans in North Dakota were harvested as of October 11, ahead of the five-year average, while only 15% of the corn was harvested and behind the five-year average.
The average Prairie basis for CWRS wheat was calculated at $.85/bu or $31.23/mt over the December future, down five cents from Tuesday's calculation and down from the strongest basis seen this fall of $1.11/bu over calculated on September 29. This is well above the 24-cents-over basis calculated on October 17, 2014. This weakening of basis is largely tied to the recent strengthening of the Canadian dollar, having reached a low of $.7428 CAD/USD on September 29, the same date of the strongest calculated basis, while having reached a three-month high of $.7791 CAD/USD in today's trade, an increase of 360 basis points. Given today's close in the December MGEX contract of $5.23 1/2/bu, the average Prairie CWRS bid remains above the magic $6/bu ($220.46/mt) at $6.08/bu, while deliveries may slow at levels below $6/bu.
As seen on the attached chart, the tendency in the U.S. market would suggest basis levels continue to narrow through the end of February/early March, while DTN's Five-Year Seasonal Index would suggest that futures tend to trend lower over this same period.
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Cliff Jamieson can be reached at email@example.com
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