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Ray Grabanski: Wheat, the "Lone Ranger"

Rallying to new highs this week, wheat prices
have continued to rally on drought concerns in the former Soviet Union (FSU) countries of Russia, Ukraine,
and Kazakhstan. That is in spite of a
lower corn market, with a potential 'head-and-shoulders' top in corn that is giving
different signals to traders than the wheat market.

Wheat is
becoming a 'lone ranger' in the bull market for grains, running to new highs while
soybeans are still wavering near their old recent highs around $9.87, basis November
futures.  What can be causing so
much of a different response to these markets where
wheat can continue to rally and be on fire, while corn and soybeans stay
more subdued?

For one, the
drought in the FSU is real, with extremely warm temperatures occurring since
July, and the intensity of the heat getting stronger as we move into the
forecast period of August.  The
heat is simply continuing to shrink the Russian,
Ukraine, and Kazakhstan harvest that will continue to trim supplies of wheat in the
world. 

That is good
news for the US, as we have more than 1 billion bushels of carryout still projected
even in the July report. In that July report,  the USDA already started trimming the major
exporters supplies with the 4 mmt cut in the Canadian crop.  Those cuts in world
wheat supplies will likely continue in the August report, even in spite of what
might be another hike in the US wheat crop yield.  Winter wheat crops in the US
were outstanding, and it looks like the spring wheat crop will also be another
bumper based on this week's HRS wheat crop tour's first few days of surveys.

While wheat
problems continue across the world, the corn and soybean crop in the US continues to
get plentiful rain (too much in many areas) and moderate temps that continue to
allow the crop to get better.  Our
Pro Ag yield models suggest that corn crops
have been improving for the past 3 weeks along with soybean crops.  Soybeans now have the largest yield
estimate of the year, and it is likely the crop
will continue to improve as we move through July and into August. So far, there
is no sign of the high pressure ridge. 

So far, it is
alarming how quickly the wheat market has pushed higher, with nearly $2 gains
in the just the past month.  This
market is truly on fire, and is the
"Lone Ranger" grain running higher the past couple weeks.  This is a good sign, though,
for corn as it will limit the amount of wheat fed around the world, and
especially in the US, as the wheat will be bid back up to a premium to feed prices
around the world.  That means more
corn is likely to need to be fed to many
areas, and that could allow a more bullish outlook for corn (depending on
how poor the FSU wheat crop is). 

So, we are
currently seeing a battle go on in grains between the bullish wheat traders and the
bearish corn/soybean traders.  Who
will win the hearts and souls of the grain
traders and technical traders over the coming weeks? 

The answer to
that question might have a whole lot to do with the direction of grain prices for
the coming weeks.  Pro Ag has noted
that wheat prices have become
acceptable to start making sales again, and thank goodness, as Pro Ag has a fair amount of
wheat to sell yet.  We are starting
to make those sales now, and finally
catch up on our sales of 2009, 2010. Perhaps we can even make some sales of 2011
crop wheat, if this rally can push a bit higher. 

It's always fun
to be able to sell grains at a profit, and recently we have had opportunity to
make sales of corn and soybeans at profitable levels.  Now it appears to be
wheat's turn!

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The information
contained, while not guaranteed as to accuracy or completeness,
has been obtained from sources we believe to be reliable. The opinions and
recommendations contained are based on our judgment and do not guarantee that
profits will be achieved or that losses will not be incurred. 

Recommendations
should not be construed as an offer to buy or sell commodities.
There is substantial risk of loss in trading futures and options on futures.

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