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Louise Gartner: Wheat follows corn

04/04/2011 @ 7:09am

As we move into April, weather is a huge player in the winter wheat complex. Dry conditions have been the story in the western Plains since last fall during planting and really haven’t improved since. The crop was already stressed going into the winter season with poor germination, poor emergence and spotty stands. As we enter the growing season, the conditions have only worsened across much of the western plain and there is little relief in sight. Forecasts are calling for cold temps to dip down into Oklahoma and even Texas early next week. While the market has priced in some yield reductions, if conditions don’t improve very soon, we could see prices rally further in response. 

The month of April often sees choppy price action, largely depending on the rains. However, the seasonal tendency for winter wheat is to peak in early May. Weather and corn will continue to be drivers of the wheat complex, but from a fundamental perspective, it seems unlikely that wheat will break hard unless we get widespread, soaking rains in the western plains.  

Spring wheat has its own story this year. The last two years of generally low-protein crops have pushed hi-pro premiums steadily higher. This week, those premiums soared as end-users rushed to find supplies. Farmer sales have been slow, with wet and muddy conditions hampering grain movement across the northern plains. The normal seasonal pattern for spring wheat prices tend to peak in early June, but spikes like we saw this week are great selling opportunities.

There is also the China weather story that won’t go away. They, too, had dry conditions since last fall but since 80% is irrigated, it’s hard to get too excited about yield reductions. However, recent reports out of China talk of disease problems being a growing issue in their most productive northern regions along with an insect infestation. At this point, it doesn’t appear to be critical but is certainly worth noting. This week’s cold weather appeared to be a non-event for them.

The technical picture offers up a slightly different look than what the fundamental situation would suggest. Fundamentals suggest steady to higher prices based on adverse weather conditions. But the charts show that prices reached the major resistance of the early March highs in Kansas City futures and then stalled. However, Chicago and Minneapolis still have a ways to go to reach those swing highs. Those early March highs are still major resistance, with Kansas City obviously having the more likely chance of breaching them.

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