Russian wheat exports remain biggest risk to U.S. wheat elevators

Key points

• Following an extended period of inverted futures markets, the outlook for elevators storing wheat has improved. Carry in the futures markets has returned and the buy basis has widened after a bigger U.S. wheat harvest.
• While elevators storing soft red winter (SRW) wheat plan to pocket sizable carries, high costs of carry will erode the smaller margins in hard red winter (HRW) and hard red spring (HRS) wheat futures. The eroding futures margins increases the importance of making margin on basis.
• The strong U.S. dollar and record exports of cheap Russian wheat continue to be headwinds for the U.S. wheat export program.
• For millers, the high variability in HRW quality and the high protein content will create blending challenges.
• The greatest margin risk to storing wheat is the shrinking world wheat crop outside of Russia and China, which leaves the market vulnerable to supply shocks and extreme volatility in wheat prices.

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