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Wheat Tour Starts This Week

Wheat
markets started the week under pressure but managed to work their way back to
last week’s highs by the end of the day Friday. Weather and politics continue
to underpin the wheat complex, and both look like they are getting worse by the
day.

After
a long and brutal winter the spring continued to stay on the cool side. A hard
freeze in mid-April dipped well into the panhandle of Texas and appears to have
done some notable damage.

It always takes awhile to be able to assess freeze damage – at least a week to ten
days. This week, we started to get some reports out of Oklahoma on the extent
of freeze damage in test plots. Damage was as much as 80% in some areas while
other didn’t get any. Generally speaking, it appears that damage in Oklahoma was
more than the trade expected to see.

In
Kansas, the freeze damage has been difficult to estimate, considering the crop
wasn’t as advanced as further south. But the trade does expect to see some
losses there as well.

The
crop tour will be held this coming week, the timing of which will be excellent
for estimating the damage from frost, not to mention the ongoing drought that
is moving well into its third year in the western plains.

Once
the cool spring weather subsided it didn’t take long for heat to build in the
plains, something that is much easier to do if there is little to no moisture.
Hot, dry and windy conditions across much of the plains have sapped much of
what frost didn’t kill.

While
rains have fallen over the last week, they’ve been spotty and in most places
woefully short of being enough to keep ahead of evaporation. Rains are forecast
for this weekend, but after that the forecast turns dry with lots and lots of
wind. Some suggest the rest of the spring will be dry in the central plains. That’s
a long time for a weather forecast to be accurate but if it does verify, the
southern plains crop is in big trouble.

Europe
had also been trending dry, but recent rains have relieved some of that stress
at least for now. Even Ukraine had some nice widespread rains, bringing much
needed relief to farmers who have enough to worry about as the geo-political
situation remains tense and apparently far from over.

No
one knows how the Black Sea saga will play out, but if the situation
deteriorates further it could cause huge disruptions in a major production and
export region for wheat and corn. This is a very serious issue and the market
has continued to build a risk premium into the wheat and corn complexes.

And
speaking of corn, the planting delays look to get worse as major rains move
through the Midwest this weekend and next week. That said, however, the ground
is also still frozen across much of the northern Midwest and Northern Plains;
and so it was going to be awhile before farmers could get into the field
anyway.

Technically,
the recovery this week after the selling on Monday shows the market is well
supported on breaks. It is also beginning to show more bullish signs rather
than neutral signs. We’re very close to major resistance levels established in
mid-March and momentum appears to be higher.

I
continue to think this market has strong upside potential, and if the weather
continues dry as forecast, the upside could be huge.

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