Ray Grabanski: Wheat, the "Lone Ranger"

07/27/2010 @ 11:00pm

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!


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.