Wheat stalls at resistance
It was another volatile week, as wheat initially slowly ground its way lower while Minneapolis continued to move higher, with most of the action in the September contract.
However, forecasts for rains in the plains and pressure in the corn market pulled wheat sharply lower on Thursday, only to see it bounce back up on Friday. By the end of the week, Kansas City and Chicago wheat showed a weekly reversal down while Minneapolis just kept pushing higher.
Much of the volatility can be traced back to corn, which continues to have significant influence on wheat prices. As we’ve watched the corn crop struggle through its growing season and prices move higher as a result, wheat has pretty much kept in step with corn’s price movements. With the spring wheat crop having its own troubles, Minneapolis has led the way higher when prices are strong, and been the most resistant to moving lower.
While Minneapolis may be the strongest of the wheat futures markets, the high quality premiums in the cash markets have all but evaporated over the last few weeks. As spring wheat harvest moves quickly along, we’re seeing much of the new crop being high protein. End-users will blend that with last year’s low protein crop, effectively making this year’s supply of milling grade wheat much higher even though yields were lower.
The big break came when forecasts suggested some much-needed rains were headed to the central and southern plains, which would help with winter wheat planting. There were also some rumors that Canadian feed wheat was making its way into the southern plains feedlots. That speaks volumes about the worldwide availability of wheat to substitute for corn, and begs the question of just how much further corn can rally if wheat feeding is that widespread.
That said, we continue to get projections of low corn yields which will ultimately lead to extremely tight corn supplies, so corn continues to be well bought on pullbacks; and of course that lends support to wheat. So, while wheat is struggling to maintain the upward momentum as it looks forward to an entire marketing year of stiff export competition, the strong corn price keeps it underpinned.
The Southern Hemisphere’s wheat growing season is getting underway, with Australia getting some key rains in the east over the last couple of weeks. They are off to a strong start with early production estimates ranging from 23 – 26 MMT, compared to last year’s 26 MMT. It is worth noting that Australia has a large carryover of feed grade wheat that can easily move into the southeast Asian markets, if it weren’t for Russia already selling their own there.