- Re-entry of Russia, Ukraine into wheat export market softens prices.
- Rapid Arkansas harvest puts downward pressure on basis.
The lessening of drought in Europe is helping erode July wheat futures, which have steadily slid downward since mid-May.
“Since reaching a high of $8.34 on May 19, the contract traded Wednesday at $7.09 – the lowest level since mid-March,” said Scott Stiles, Extension economist-risk management for the University of Arkansas Division of Agriculture.
Traders anticipate that Russia and Ukraine will be back as major exporters of wheat this year.
“Both countries imposed wheat export restrictions after last year's historic drought, but recently, drought conditions have improved in other parts of Europe,” he said. “And typically, we see prices come under seasonal pressure at harvest.”
Nearer to home, the basis is weakening due to pressures that normally accompany a fast harvest. “Basis” is the difference between the cash price and futures price on a commodity.
“At least the basis isn’t compounding the 15 percent loss we’ve seen in the futures market over the past month,” Stiles said. “In fact, the basis at Mississippi River terminals improved for three consecutive weeks from mid-May into the first week of June.”
During the initial week of June, basis levels ranged from 30 to 40 cents over July futures at most Mississippi River delivery points – a time when the Arkansas wheat harvest was just 25 percent completed.
“The heat and dryness we’ve seen really moved harvest along – fast! From June 6 to June 13, we zoomed from 25 to 70 percent harvested. That rapid movement of wheat from field to market can really weaken the basis – a typical response when storage or barge capacity is consumed quickly.
“On Wednesday, a basis of just 13 to 20 cents more than the July contract is more common on the Mississippi River, providing growers a cash bid around $7.25 – certainly not bad by historic standards. The marketing year average price received by Arkansas producers over the last three years has been about $5.30.”