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Louise Gartner: Wheat weather is crucial
This time of year the market tends to shift its focus to weather, and this is definitely one of those years. Indeed, weather has been an issue since last fall when much of the western central and southern plains winter wheat was planted into very dry conditions, germination and emergence was paltry at best and winter offered no relief from the harsh conditions.
As winter wheat broke dormancy in the Panhandles, there was little if any improvement in moisture conditions. Now as Kansas tries to green up, the continued lack of moisture in the western plains is forcing the market to pay much closer attention. Crop conditions for the western and southern plains are bordering on terrible and aren’t going to get any better without the rains. Texas winter wheat conditions are rated 56% poor/very poor, the worst in 44 years. Oklahoma isn’t much better at 43% poor/very poor, with Kansas sitting at 37% poor/very poor. Wheat may have nine lives, but it’s using them up fast without the rains.
The sudden change in the forecast on Wednesday for two rain systems to move across the western plains brought out the bears who tried to press the market lower. But at this time of year, just a forecast won’t break the market; we need to see the rain actually fall - which it failed to do. By the time Thursday was finished, wheat had regained those small losses and was working back up to the swing highs from last Friday.
For most regions, the growing season is just beginning and weather is already a huge factor. If the rains do not materialize soon for the western plains, wheat could easily have more rally power in it. The seasonal tendency is for wheat to build a weather premium through much of April. I think it’s worth noting that some of that usual weather premium includes frost, which hasn’t even been mentioned yet.
The question is, how much more rally power could wheat have. A disaster in the western plains of the US should be enough to rally wheat back to the congestion price range of late Feb/early March, but I don’t think it could get back to the highs of early Feb. That said, if a notable problem develops elsewhere in the Northern Hemisphere, then I think we could see prices have much more power and at least get back to those highs. That other problem might even be here in our own northern plains and Midwest (we’d have to include the Canadian prairies as well) where continued cold, snow and rains are setting the stage for another spring with planting delays.
As we look around the Northern Hemisphere, the area that jumps onto the radar is still the southern Russia region that was at the heart of the massive drought last year. They did not had enough moisture last fall or through the winter to relieve their dry conditions. Winter wheat plantings were down last fall but they do expect spring grain plantings to fill those acres. This is a very important region for Russian grain production and the market is watching it closely.
It’s also worth mentioning that the northern regions of the Chinese winter wheat growing area are still dry. While much of that wheat is irrigated, if it stays dry we could at least see some small yield reductions, which for China could translate into a big deal. There are also frost/freeze forecasts for late next week in east/central China where the crop is advancing; it is not expected to be cold enough to do any lasting damage but certainly bears watching.
We’re also hearing talk of dry conditions in northern France but it’s not a major problem at this point.
The corn market will continue to exert its influence on wheat. The wheat/corn spread has narrowed to 11-year lows, and as a result we’re seeing a great deal of wheat make its way into feed channels here in the US and around the world. While that has subdued old crop corn prices somewhat, there is still a huge base of demand for all feed grains; and, of course, demand from the ethanol industry will continue to underpin corn prices. That won’t change in the near term; so if corn prices continue to be well bought, that support should spill over to wheat as well. The constant chatter of China buying US corn was a big component of both last week’s and this week’s corn rally. On Friday, we finally got the announcement of a 1.25 MMT sale to unknown, widely presumed to be China. The inability of corn to hold the gains after the announcement was also a drag on wheat.
Export sales continue to be strong for the wheat program, running about 50% ahead of last year’s sales and in line with USDA projections. China was on the roster this week with a purchase of 116 TMT of high quality wheat. While that was a boost for the bulls, it’s not unusual for China to purchase high quality wheat to blend with their low quality. For this marketing year, USDA has them slated to import 1 MMT of total wheat.
USDA will release their preliminary spring planting projections on Thursday, March 31. The market is anxious to see the numbers, particularly for corn where planting projections are well above last year. We’ll also get the quarterly stocks report, and again, the curiosity is piqued for corn. It appears that livestock weight gains have been above average with last year’s corn crop and usage could be down, resulting in higher stocks than would be normally anticipated. The report is sure to have plenty of data for the market to digest.
Technically, wheat did not get much follow-through from last week’s strong reversal higher. Prices failed at last week’s highs, giving us a minor double top formation which is now the resistance level. Supports come in at last week’s lows, which is a minor trading range bottom and then the troughs from the spike bottom. In Chicago May futures, the first support at last week’s low is 7.05 and trough support is 697. Kansas City May’s first support is 8.50 with the trough at 8.00. For Minneapolis May, first support is 8.53 with the trough at 7.97.
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.