Moving forward, obviously weather will remain the key driver of price action. With so much uncertainty surrounding corn and soybeans, we can expect that volatility will be common and wheat will follow where corn goes. This is particularly true if corn yields start to decline; we’ll then be looking at yet another year where feed users will turn to wheat and prices for both will move generally in unison. 

The supply/demand report on Tuesday is largely one for wheat guys, but we could see some adjustments for corn with this year’s weather already creating havoc. In the larger picture, we’re looking at world wheat production down this year about 3% from last year with ending stocks down about 5%. We could easily see USDA shave more off of world production in tomorrow’s report. Couple that with lower Southern Hemisphere production this fall and it’s hard to make a longer term bearish case for the wheat market. It’s not a raging bull (yet), but it does suggest waiting for strong rallies to sell the market.

Last week, grain markets were higher, led by very strong corn and soybean markets. Weather is the leading reason for stronger prices, and looks to remain the main driver for the near future. There are a number of regions where weather is creating stress to crops.

Here in the US, the Drought Monitor showed a large portion of the Midwest in an abnormally dry situation. Some areas of the southern Midwest are already labeled as being in drought, which could lower double-crop soybean planting behind wheat. Last week’s forecast called for rains this past weekend, but those rains didn’t materialize for most of the region. The short range forecast calls for more heat and dryness to come, and some crop watchers are strongly suggesting that stress is imminent and yields declines for corn and beans are sure to come.

We’re also closely watching the Black Sea region, where dry conditions continue in the Lower Volga River regions. The heat has also settled into that region, and crop stress is definitely impacting yields. The dryness expanded back into eastern Ukraine and western Kazakhstan last week, and forecasters are calling for the dryness and heat to now expand north into the northern part of Russia which so far has seen very good weather. 

Obviously, the market is going to be very watchful to see if this forecast verifies, since it’s exactly this kind of weather that created the huge bull market in wheat just two years ago. This time, however, we have other major regions of the world also stressing that would add to the problem.