Weather pushes up wheat prices
Wow! What a difference a week makes! Last week the wheat market was putting in new lows for the move, well below the major support levels. This week, the market got spooked by the increasing stress to Russia’s winter wheat crop and hot, dry conditions across the US central plains as the wheat crop enters its final stages.
For the week, Chicago wheat was up $1.02; a 17% gain – the largest in 16 years. Kansas City was up $1.04, also a 17% increase while Minneapolis was just along for the ride - up $.51, or 7%.
The market’s perception about the wheat market has almost reversed itself literally in just a matter of a few days, going from very bearish to suddenly bullish. However, the process leading up to that shift has been evolving ever since last fall.
For starters, the dry pocket of southern Russia never did recover from the drought of 2010, and those dry conditions created more planting issues last fall. We also watched Ukraine struggle with drought during their planting season – before it was even over they projected that their wheat production would be down 40% from the previous year.
In late January/early February, we witnessed a massive cold snap that engulfed Eastern Europe and then progressed to the west, killing hundreds of people and thousands of hectares of wheat, barley and rapeseed. Even this week, well into the growing season, we’re still getting reports of more winterkill damage in Europe. On top of all that, much of Western Europe experienced three frosts/freezes this week alone, which were feared to do additional damage. To date, Europe is projected to produce 5% less soft wheat than last year, but that number could easily grow.
This spring, the area from eastern Ukraine through southern Russia into western Kazakhstan has yet to see meaningful moisture and temperatures are well above normal. Forecasts for the hot and dry sukhovei winds to come only add to the problem. This week, SovEcon projected that Russian grain exports would be down 28% from last year.
In the US, a mild winter and abundant spring rains led to projections of a bin buster wheat crop in the southern and central plains. However, heat, dryness and winds are sapping the life out of the crop just as it tries to fill.