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Crop forecasts get shaved-Louise Gartner

Grain markets surged higher last week, completely regaining their losses from two weeks ago. It seemed like the market finally keyed in on the production losses in Europe; and coupled with the increasing production losses here in the US for wheat and corn, and even possibly soybeans, buyers were much more aggressive than they’ve been recently. 

Chicago wheat gained almost 16% last week, the large percentage gain in over 3 years. Kansas City was up 8 % and Minneapolis up 9%. Corn was 12% higher for the week with soybeans up 3%.

While corn and wheat have their own bullish fundamentals, they’re also feeding off of each other. With so much wheat moving into the feed channels, any loss of corn production could be translated into higher wheat usage. The Southeast Asian markets have made significant switches to feed wheat, and it looks like the dry weather in China will force them to be much larger importers of both corn and feed wheat this marketing year.

Quality wheat, on the other hand, is also finding a surge in buying interest as farmers have virtually shut off sales while they wait to see if they’ll even get this year’s spring wheat crop planted. Basis values for high protein spring wheat soared last week in Minneapolis to their highest level since 2008. It looks like the early June time window for high quality wheat to peak is still on target. Of course, if spring wheat plantings remain stalled, which it looks like could actually be the case, we could be in for another year of very strong protein premiums. 

North Dakota is projected to see a big drop in wheat plantings because of the wet weather, with farmers opting to plant shorter season soybeans or sunflowers instead. Eastern Montana and the southeast Canadian Prairies have had almost zero field activity and we could be looking at preventive plantings in those regions. The eastern Midwest isn’t much better off with persistent rains keeping farmers out of the field as well. The trade is expecting to see as much as 5 million acres of crops lost this spring – most of that to preventive planting but also some to flooding. 

In sharp contrast to the flooding, the drought in the southern plains intensified according the US Drought Monitor. Ironically, as harvest gets rolling in Texas and Oklahoma on what little crop there is to cut – the rains are now coming. There were as much as three inches of rain in areas of Oklahoma where harvesters were ready to go. After months of nothing but dryness, now the rains come when they least need it. It’s almost insulting. 

The dryness in Europe continued through the week and forecasts suggest more of the same for the this week. Crop forecasters are getting more bold in shaving production estimates. France is down from 10-15%, with Germany looking at a 7% drop so far. Considering that Europe was an aggressive exporter this past year and their stocks are much lower than normal, it’s unlikely that they will be as aggressive this coming marketing year. 

Russia and Ukraine remains on track for big production this year, and expectations are high that export channels will re-open shortly after their harvest. While both countries will be looking to regain market share, their projected exports are much less than where they were two years ago. Ukraine is estimating that total grain production will exceed 45 MMT, up from 39 MMT last year. Some suggest that their output could be notably higher than that with the good weather so far this year. Russia is projecting that spring grain planting will be up 500,000 hectares (1.25 million acres) as winter grain plantings were lower on dry weather.

Wheat markets did see some selling late in the week as the market seemed to stall at major resistance levels. Rains in Western Australia were blamed for some of the pressure as the much needed moisture should help with seeding progress.

Technically, wheat price action has been as volatile as corn, but seems to have more resistance built into the charts. I think fundamentals are too positive to turn this market into a bearish trend, but the upside would appear to have its limits as well. It seems a trading range could be in store for the near term as the growing season progresses. That said, if corn rockets higher, wheat will surely tag along. From that perspective, I’d rather be a buyer on breaks and see what we get on the upside. 

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This publication is strictly the opinion of its writer and is intended solely for informative purposes. It is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named.  Information is obtained from sources believed to be reliable, but is in no way guaranteed.  Futures and options trading always involve risk of loss. Past performance is not indicative of future results.

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