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Wheat market surges higher-Louise Gartner
Weather continues to be the driver of the wheat complex. With the widespread drought in the southern plains, rains/floods in the northern plains, European drought and signs the Chinese drought is intensifying, wheat has plenty of reasons to be bullish.
Planting delays across most of the spring wheat region have become serious, and Minneapolis futures are enjoying a rare leadership role as both old and new crop significantly outperform the Kansas City and Chicago markets. Minneapolis front month reached a 3-year high while KC and Chicago only reached a 2-week high.
The harvest has begun in the southern plains though few seem to have noticed, particularly the market. The expected small harvest is unlikely to pressure the market until it reaches the northern Kansas region, which is still at least a few weeks away.
Basis values are also surging for both spring wheat and corn, as farmer selling has all but stopped and available supplies tighten. Users are looking at late harvests for both crops and stepping up to secure supplies that will last them through late summer.
Northern Europe continued to be dry with more yield reductions appearing imminent. There are some light rains forecast for the region over the next two weeks, which softened European prices slightly late in the week, but only after prices had reached contract highs first.
US prices started the week under some pressure on heavy fund selling, but finished the week strong even as we headed into a 3-day weekend. Most of the late strength was focused on old crop July futures for both wheat and corn, with deferred months lagging.
It looks like Russia will be opening their export markets soon, with the announcement expected any day. It appears to be just a matter of either being July 1 or August 1. They did imply, however, that their wheat exports would only be about 4.5 MMT, far below USDA’s recent estimate of 10 MT. While the re-entry of the Black Sea region into the world export market is generally a bearish development, the lower than expected amount they’ll have for export helps to offset some of that price pressure.
Ukraine is on track for a big grain harvest, with current production estimates at 43-47 MMT, above last year’s drought reduced 39.2 MMT. Wheat production is expected to be 21.5 MMT, up from last year’s 16.8 MMT. They are expected to export around 8 MMT of wheat, about equal to USDA’s estimate. The increase in exports from the Black Sea region will help to offset world production losses but they are unlikely to be enough to cover all of the losses.
Indeed, the International Grains Council reported that they expect world wheat production to be 667 MMT, down 2 MMT from last month and 2 MMT below their latest consumption estimate. This is in line with USDA’s estimate that world wheat ending stocks will be down from last year. I think it’s reasonable to say that stocks will continue to decline, given the current weather conditions and production problems.
The normal seasonal pattern would have wheat turning lower by now, usually pressured by the harvest of the southern plains. Price action is obviously not following that pattern, but the upside strength appears to be somewhat slowed by those trading seasonal tendencies. Wheat prices seem to be stalling at resistance levels and struggling to move through them. Even front month Minneapolis, while managing to reach a 3-year high this week, seemed to find a lot of selling up at that level.
It’s very difficult for Minneapolis to carry the wheat market on its own, but for much of this week that was the case. It’s worth noting, however, that the seasonal tendency for spring wheat is to peak in early June, and prices are certainly rising into that time frame. High protein basis levels are also rising into the normal seasonal window as well.
For producers who have held onto high protein wheat in hopes of the early June seasonal performing, it looks like the wait has paid off. While there are good reasons to think that prices could stay strong past the seasonal window of early June given this year’s fundamentals, one has to weigh the risk of losing these high premiums as we head into the summer months. We don’t know for sure what the market will do, but it certainly seems prudent to cash in on this rally after a long wait.
As for low protein wheat, it kind of seems like the same strategy works here, too. It’s rare that low quality wheat would enjoy strong values, but the rising tide has lifted all boats. Considering the normal seasonal patterns that winter wheat peaks in early May and spring wheat peaks in early June, this rally is offering a great opportunity to sell remaining old crop wheat and scale in more sales of new crop.
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.