Wheat surges to late winter highs
Wheat continued its rally last week as more frost damage reports clearly indicated wide, extensive kill, much more than originally expected. Those traders who love to sell frost scares in wheat got caught this time and spent the week covering shorts, which pushed prices above key resistance levels and brought in fund buying to boot.
Crop condition ratings plummeted last Monday afternoon, with US good/excellent down 9 points to 55%. KS was down another 19 points in the good/excellent category, and up 11 in the poor/very poor. KS has had a whopping 41 point drop in good/excellent in just two weeks, and this afternoon's report will likely continue that trend.
Soft red hasn't fared any better, with Missouri down 36 points in the good/excellent, Illinois down 28, Arkansas down 26 - in just one week! There was no doubt any more, this was not like 1997, despite the similar cool/wet conditions following the frost. That year, we ended up with a near record wheat crop. For the 07/08 crop year, even with the large increase in acres, we'll be lucky to keep ending stocks equal to 06/07.
Having its own problems, so much for wheat being a buffer for corn. Wheat was supposed to be a stop-gap for feed grain supplies if we couldn't produce enough corn. But while we may have more feed grade wheat because of the frost, total wheat supplies will remain tight this year for the US and the world. That keeps up the pressure for corn production and supplies as we dramatically increase the demand base.
Wet conditions have slowed corn plantings, but last week had a window for fieldwork. Forecasts have another rain system moving across the Midwest this week, which could further slow plantings and take us very close to the end of the ideal planting window. There are sure to be more volatile trading days as we try to wrap up corn and bean plantings.
Taking a look around the globe, we see some dryness issues developing in the Eastern Europe, Russia/Ukraine region. Actually, most of Europe has had below normal rainfall for April, and topsoil moisture conditions are reported short throughout much of Europe. Forecasts for the CIS region do not project any significant rain events in the near future.
Australia is still stuck in their drought cycle, with it getting so severe that their government suggested they may have to ban irrigation as water supplies have dropped to extreme levels. Forecasts suggest that there is a trend change coming for the month of May that will bring much needed rains. China is also reporting some drying conditions that are raising concerns in key growing regions, particularly in the North China Plain. Much of the land is irrigated, but dryland fields are well under normal moisture levels to support spring crop planting.
Technically, the week saw a great deal of spread unwinding. We saw liquidation of the corn/wheat spreads and Kansas City/Chicago wheat, which took us to negative territory in the July contracts. Wheat has had a stellar rally after the frost scare. But, despite fundamentals turning quite bullish, we'll likely see a correction in the near term, especially if corn continues under pressure.