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Wheat surges higher
Despite rains coming to the southern Plains, which would normally have a bearish reaction in the market, high temperatures, aggressive plant growth, increasing winter-kill evidence in Europe and corn purchases by the Chinese all combined to pushed wheat markets higher this week. Last week’s selling was almost completely negated by this week’s change of attitude as hedge funds and index funds went on a grain buying spree, even as wheat fundamentals remain mixed.
Wheat prices definitely have seen a strong undertone over the last couple of months. While still within the large trading range that was established through the winter, price action has become increasingly narrower over the last few weeks. At some point, we’ll get a breakout; and it will probably happen sooner rather than later.
Europe added another two countries to the list which are reporting early signs of winter-kill from the extreme cold snap this winter. Germany and Italy are now reporting evidence of crop damage. We haven’t seen loss estimates from them yet, but total European production expectations continue to erode.
Even Russia is expected to see some production losses; SovEcon is estimating winter-kill issues in the southern region where snow cover was inadequate through the cold spell. They project that exports next marketing year will be lower since most of their exportable supplies come from the southern region, where it is much cheaper to transport to the export facilities.
Wheat prices were also goosed by a stronger corn market, as sales for 240,000 tons were announced early in the week and widely presumed to be China buying. While sales had long been rumored, many in the trade expect that this is just the beginning, and many more sales will be coming through the summer. It’s safe to say that as long as corn prices stay supported, so will wheat as wheat feeding continues strong.
So strong, in fact, that we’re hearing of more cargoes of feed wheat being imported into the US. Normally, this would be viewed negatively, but this week it didn’t seem to create many ripples.
There are negative issues in wheat. We've got rains coming through the southern Plains and temperatures have been above normal. It appears that rainfall will see the usual divide of the west getting only light amounts and the east getting likely more than enough.
The moisture will be a huge boost to growth, as temperature have been well above normal for several days, accelerating wheat growth to as much as three weeks ahead of schedule. As long as cold weather stays away, this paves the way for big yields down the road. But cold weather staying away could be tricky, with at least a month left before the usual last frost date in Kansas.
So, the warm and moist conditions could be viewed both ways, depending on how you want to look at it. But for now, unless we actually get the cold weather, this early start to the wheat crop will be viewed bearishly.
Technically, wheat has been trading in a wedge formation that will soon see a breakout. I continue to think that the low end of the wider trading range will serve as long term support. Wheat has a good chance of testing those lows, but it’s obvious that there are plenty of traders who want to be long.
We are just in the beginning of the Northern Hemisphere’s growing season and already world wheat production is projected lower than last year. It is my belief that winter-kill estimates will continue to grow, adding to the longer term positive outlook. That said, with record carry-over wheat stocks, we’ll have plenty of wheat to buffer minor losses. It’s if losses become larger that we will have a problem.
And of course, corn and soybean production will be extremely important. Any hint of weather issues in the major producing region of the Midwest, and those two markets will move higher with wheat following along. No doubt, this summer will be very interesting to watch, indeed.
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.