A Sharp Rally, Then a Breather for the Wheat Market
The grain complex gapped higher to start last week, led again by Minneapolis as it surged following another weekend of blistering drought torching Northern Plains spring crops. Minneapolis extended its rally on Tuesday to a four-year high, then ran into profit taking.
The other wheat markets tagged along with Minnesota, both higher and lower – just not as dramatic. For the week, Minnesota ended down 6¢ after a 113¢ trading range (Tuesday alone had a 95¢ range). Kansas City was up 13 on a 42¢ range for the week, and Chicago was up 9 on a 45¢ range.
The break came as crop condition ratings showed a surprise improvement for North Dakota spring wheat. That said, U.S. spring wheat ratings this week still stood at a record low for this time of year at only 37% good/excellent, and 33% poor/very poor. North Dakota increased 2 points to 41% G/E. Montana dropped 14 points to only 8% G/E, and jumped 15 points in the P/VP category to 51%.
Rains moving across Europe prompted those grain buyers to pull premium bids, removing some support for world cash values. Egypt stepped up with a purchase of 410,000 Russian/Romanian wheat and then tendered again on Friday. Kind of curious about its aggressive buying stance for this time of year, but no one is complaining – except for the whole ergot thing that it can’t seem to get straight.
Futures retreated into late week, with Chicago and Kansas City testing the key gap areas left on Monday – and holding so far. Corn also tested its gap, with September dipping just below it, but December managed to hold the gap level and then bounce up from there. Corn couldn’t rally above the early June highs and saw some profit taking late in the week.
Soybeans, on the other hand, not only did not come back down to test Monday’s gap, but also steadily pushed higher throughout the week as crop conditions were slightly lower and new-crop contracts easily moved above the first notable resistance of the May highs.
It’s all about weather for at least the next few weeks, and it doesn’t look like Mother Nature is offering much relief for the Northern Plains, with the Canadian prairies next up on the hit list. Drought is expanding not only farther west into central Montana, but also deeper north into Canada – primarily Saskatchewan. That’s smack in the heart of spring wheat and durum country.
Farmers in the Dakotas and Montana are baling or grazing spring wheat, or simply abandoning fields. Crops that are still hanging on will be facing punishing weather as they try to fill heads, and yields will likely continue declining.
The drought is also expanding south and east, pushing into the western Midwest. Iowa had about half of normal rainfall through June, relying on abundant subsoil moisture to keep the crop holding on. However, with the next two weeks (at least) looking at dry and quickly warming conditions, moisture will run out soon. The prairies are already burning up with more heat on the way. The eastern Midwest is expected to have pretty much normal weather. If the weather pattern doesn’t change for the west, like right now, crop stress will quickly increase in the key corn and soybean areas of the Midwest – and markets will respond.
Despite the sharp break in spring wheat futures, I think there is more upside coming. Not only because of the weather forecast, but also because the battle for acres will be much earlier and aggressive than normal. Spring wheat must rebuild its acreage base, primarily in North Dakota where farmers have moved to corn, beans, and other pulse crops. That could be a heavy lift if those crop prices are also rising.
Supply rationing for spring wheat has yet to really hit the market, much less buying acres. Obviously, if corn and beans get a weather rally, wheat will certainly come along. Normally, it’s Chicago wheat that moves the furthest in weather markets, but this time it could well be spring wheat. I think there are plenty of fireworks left in the grain markets for this growing season.
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