Milling & Baking News - November 29, 2022 - 23

of slow export sales eventually catches up
with the market and drives it down. "
He continued, " If we can avoid any
additional disruptions of Ukraine exports
and continue to see them weekly, I think
we can continue to drift lower here. KC
March and Minneapolis drifting below $9
maybe as we get into Q1 and Chicago may
have some downside too, but it's already at
a wide discount, so maybe more limited. "
Mr. Freed concurred.
" Chicago nearby, we're trading between
$8 and $8.50, " he said. " Assuming normal
weather, that means nearby Chicago wheat
trading at $7.75. Do we still have a premium
in KC? I would assume so. And in Minneapolis
because people want protein? I would
assume so, too. So, you start from $7.75 and
add the difference for KC and Minneapolis. "
From the baker's perspective, buying the
dips when headlines apply pressure is only
part of the equation. What of the basis?
" As far as the basis is concerned, if we
have futures going down, the basis premiums
have to go up and it has to be relatively
stemmy, " Mr. Freed said. " For a baking
company or grain elevator, it's kind
of the worst of all worlds because basis
can't be hedged and everything you buy,
raw materials, wages, freight, everything
is going to be higher. We came back from
COVID quicker than some people thought,
and the industry's just not ready for the
demand. The consumer now is very picky
about what they buy for food with less disposable
income. For a food company, on
one side everything that you need to make
the product goes up and on the other side
of the equation you don't know if the consumer
is going to buy the product. "
Mr. Lapp added, " We've had a decline
in these markets, a meaningful decline
of maybe 5% since early October, so the
baker should be into Q1 if not through Q1
on coverage. "
But the reality of high prices has kept
far more bakers and other flour buyers
going hand to mouth than usual. That's
perhaps got bakers behind normal coverage
pace at about 50% covered for the
first quarter and 20% to 25% covered in the
second, Mr. Freed said.
" When the market's down like it is now,
bakers should try to add coverage, because
we're just one headline away from a sharp
rally, whether that headline is the Fed
chairman says we're done raising rates,
or someone pushing the nuclear button in
Ukraine or it just doesn't rain in Kansas, "
Mr. Freed said. " Right now, the glass is
bakingbusiness.com
NEARBY WHEAT FUTURES
$15
$12
$9
$6
Kansas City
Minneapolis
Chicago
half full, but at any time you could see a
headline that would flip the market. Some
people think 50¢ ago the market had a dollar-up-dollar-down
risk. So, now you've got
a risk of 50¢ down or $1.50 higher. "
Support underpinning the market comes
from poor conditions of the winter wheat
crop in the central and southern Plains,
although parts of the latter region - Texas
and Oklahoma - saw mid-November
improvement after receiving beneficial
rainfall. Montana saw the biggest improvement,
jumping from 24% good to excellent to
41% in a week. But by Nov. 20, little improvement
was seen, and conditions were poor
heading into dormancy with good-to-excellent
ratings pegged at 24% in Kansas, 19% in
Oklahoma, 18% in Texas, 21% in Colorado,
22% in Nebraska, 24% (all good) in South
Dakota and 41% in Montana.
" Much of the hard red winter wheat
world wheat ending stocks for 2022-23
at 267.82 million tonnes, down 3.1% from
276.31 million tonnes in 2021-22. The
USDA estimated 2022-23 global wheat
production at 782.68 million tonnes, up
0.4% from 779.44 tonnes in 2021-22.
Mr. Freed said industry consensus
is the USDA's global trade estimates are
high, and its carryout projections are low.
" The USDA is very cautious, patient
in making big changes in global trades, "
he said. " We haven't dealt with the war
before, extreme conditions before. They
tend to wait a little bit longer, if the market
is trading, to make changes in numbers.
" Even though most of what they ship
is corn, wheat tends to trade the Black
Sea news more than corn. We also are
pegging the Russian crop at 100 million
tonnes, versus the government's 91 million
tonnes. There's a chance they could
Dec.
2021
Jan.
2022
Feb.
March
Source: CME Group and Minneapolis Grain Exchange
area is drier than a popcorn cart, " Mr.
Lapp said. " Extremely poor conditions in
the hard wheat states and more favorable,
near- or above-trend condition for soft red
winter and white wheat. We're kind of getting
to the point now in the season where
it's bad and the only thing it can do now is
improve. It really can't get worse. "
Mr. Freed added, " The key is that La Niña
goes away. National Weather Service says
the five-year average that they use, La Niña
will still be around in March and April, but
we might actually see a transition to a neutral
situation, perhaps as soon as February.
The market is hoping we can put aside all
these dry patterns we're seeing in the southern
Plains and South America and Australia
and get back closer to normal. "
Globally, wheat stocks were projected
to decrease year-over-year. The USDA in
its November World Agricultural Supply
and Demand Estimates report forecast
ship 45 million tonnes of wheat versus
the USDA's 42 million. Ukraine might be
able to ship 13 million to 14 million tonnes,
versus the government's 11 million. So
Russian prices are cheap, and the US is
not competitive on the export side. The
market exhaled because of the fact that
we don't have a lot of export business, and
the contract at least in Chicago is export
sensitive. So, we're just too sensitive as far
as wheat exports are concerned. "
Mr. Lapp agreed.
" The market is safeguarding US supplies
against exporting what we don't
have, " he said. " We've essentially done
that, so if we're going to get more wheat
out of the Black Sea, we probably have
some downside risk to US export totals. "
WEATHER KEY TO SOYBEANS
While the 2022 US soybean crop failed
to meet its record-breaking expectations as
MILLING & BAKING NEWS 23
April May
June
July Aug.
Sept.
Oct.
Nov.
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Milling & Baking News - November 29, 2022

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