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Wheat poised for global weather rally
Wheat markets broke out of their doldrums and surged higher last week. Weather has been much of the grain markets’ story all winter and it looks like it will remain center stage as the Northern Hemisphere begins its growing season.
Warm and windy conditions across the US southwest are bringing wheat quickly out of dormancy, a little too early for the more northern areas where cold temperatures could easily return.
Dryness has been a problem throughout the winter for the western half of the southern and central plains, particularly the panhandle areas and southwest Kansas. The dry winds are sapping what little moisture they had and now are taking it from the wetter eastern half as well. As a result, Kansas City saw strong buying interest on Friday.
Minneapolis has emerged from the bottom of the pile to find significant buying as well. The dry northern Plains did get some moisture early last week, but concerns still remain as warm temperatures will likely rob much of that moisture. And of course, the Canadian prairies remain mostly dry as well.
It’s not just weather here in the US grabbing headlines. We’re hearing much more chatter about the expanding dryness in China – over the North China Plain (corn and winter wheat areas) and also the northeast (corn and spring wheat). A weak monsoon failed to deliver the usual rainfall to the headwaters of several major rivers that feed Southeast Asia, a major source of irrigation water. It’s important to remember that about 90% of China’s winter wheat is irrigated.
Not to belabor the weather point, but France was ratcheting up their estimates of grain damage from the cold snap that converged across Eastern and Western Europe in late Jan/early Feb. While they initially only expected to see losses to barley and durum, they are now including wheat as well. So far, wheat losses are about 1 MMT, but we’ll get a better look at all of the damage in just a few weeks.
Some of the big news last week was the Iranian purchase of US hard red winter wheat – at least two cargoes that we know of and some suggest it could be more. Kind of hard to believe that the country leading the way on sanctioning Iran is actually selling wheat to them, but humanitarian reasons allowed the sale to take place.
Other than that, export news was a bit on the slow side, with total sales reported from last week at just 509,000 MT, the low end of the range and notably less than what we’ve seen over the last few weeks. It’s reasonable to expect that more of a slowdown could be coming. The US dollar had a jump in value last week against both the euro and the Australian dollar, and it’s likely that we’ll be losing sales to them as a result. Also, Russian ports should be thawing soon, not that they will be competitive exporters.
Technically, the buying was persistent most of the week. Hedge funds and large specs continue to carry a record short position in wheat futures, but that strategy has not performed well lately. That said, prices are quickly approaching major resistance levels at the trading range highs and will likely have trouble keeping up the momentum much beyond those levels – unless Mother Nature throws some gas on the fire.
For now, it’s likely that wheat will stay supported until the rains come. If (or when) they do come, prices will like deflate quickly, but still find major support at the winter’s trading range lows. Unless weather problems get worse, it’s likely that wheat will stay within this trading range for at least the short term. If weather does get worse, and prices break above the trading range highs there won’t be much resistance until we get up to the 8.20 level on Chicago Dec, the 8.60-8.80 area on Kansas City December, or around the 8.75 area basis Minn Dec.
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.