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Wheat prices surge higher -- Louise Gartner

Well, after two weeks of Chicago wheat failing to muster up enough strength to get back into the trading range, it exploded higher and within three days, was all the way back up to the top of the range. Kansas City and Minneapolis were right up there as well, not to mention strong performances for corn and beans.

Suddenly, the trade decided that the persistent rains in Australia did, indeed, matter; and that harvest being five weeks behind schedule was a big deal. It’s been a very difficult harvest season for eastern Australia, primarily Queensland and New South Wales where most of Australia’s quality wheat is grown. The rains have been relentless and quality losses are mounting every day with some estimates approaching 90% being downgraded to feed wheat in the key region of northern NSW and southern Queensland. 

Fortunately, this year there is actually a robust market for feed wheat due to the Black Sea drought. It saved many producers here in the US and Canada now has a program for feed wheat sales as well. And we’re seeing world feed wheat demand shifting to Australia, where transportation costs are much lower to the Southeast Asian markets. 

The major loss of milling quality wheat out of another major exporter only adds to the shortage that is already worldwide. Most of the price action for quality issues will play out in the cash market, and I see no reason why the high protein spreads will soften any time soon. Historically, those premiums actually tend to increase into the late spring/early summer.

And yes, there is still that dry region of the US central plains where the wheat is in terrible shape as it heads into dormancy. But the dry pocket of winter wheat is now pretty much confined to that region of western Kansas, eastern Colorado and southwest Nebraska. For most of the rest of the US, rains have been plentiful and the crops look good as winter approaches.

The funds also had something to say this week. Not even five minutes into the month of December the buying had begun across the grain complex during the night session by an apparent massive infusion of fund money, and the weakening US dollar only added to their buying commitment. Thursday’s session showed a potential spike high with a wave of selling on the close, but the plummeting dollar on Friday revived the grains and took wheat back to major resistance at the range highs. 

Export sales also had a strong week, with sales above trade estimates at 704 TMT. We also were the lone sellers of 220 TMT to Egypt at $326/MT delivered, barely edging out France by a mere $1/MT. Nevertheless, that was the second sale in a row to Egypt that the US was the only seller and there is more talk that Europe is simply running low on wheat. 

Stats Canada issued their latest grain production estimates this week. All wheat was estimated to be 23.17 MMT, up .8 MMT over the trade estimates and down 2.3 MMT from last year. They also projected that about 5 MMT would grade feed wheat. Durum was 3.03 MMT, right at estimates and down 2 MMT from last year. Barley production was pegged at 7.6 MMT compared to 9.5 MMT last year and canola came in at 11.8 MMT, compared to 12.4 MMT last year. The trade took the estimates in stride with very little price reaction.

The technical picture is suddenly much different for Chicago wheat as it not only managed to get back into its trading range, but surged to the top of the range. For Kansas City and Minneapolis, they had always stayed within their ranges, but also surged to the top. While now running into strong resistance, all three of those markets could easily take out those highs considering the momentum they’ve had over the last few sessions and that the fundamentals aren’t improving. Even if prices don’t breach the trading range highs, they’ll likely now stay within the range for some time.

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.

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