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Analyst: Weather Concerns Offer Wheat Support

After a quiet start, wheat markets were mostly higher for the rest of the week. Kansas City found continued strength on forecasts for more freezing temperatures in the central/southern Plains, with this weekend’s lows in the Texas panhandle to dip down to 27°F. Temperatures below 30°F. for more than two hours would likely cause severe damage to wheat in the heading or flowering stages. As of last Sunday, April 23, Texas wheat was already 67% headed, Oklahoma was 65%, and Kansas 25%.

Minneapolis managed to rally beyond the mid-April high on strong cash markets for hi-pro wheat, something that has been in short supply for most of the last two years. Planting delays in the northern Plains and Canadian prairies are also supporting the spring wheat market. In fact, you could throw in harvest delays to that quandary as well, with up to 2.5 million acres of spring wheat and canola left unharvested from last fall due to heavy rains. Producers still can’t get into the fields to get that done.

As of last Sunday, spring wheat plantings here in the U.S. stood at 22% completed, 12 points behind the average. Montana was running about 7 percentage points behind at 24%, and North Dakota was 13% percentage points behind at 9%. With spring wheat the only class to have tight supplies here in the U.S., the prospect of a stressful planting season runs the risk of pushing pollination into the hotter days of summer, creating concern that high-quality wheat supplies may face another tight balance sheet. 

Weather is adding concern to wheat prospects in Europe and the Black Sea as well. Warm and dry conditions have been persisting in eastern Ukraine and Southern Russia, leading to heightened alert about grain production potential in the Black Sea region.

European weather stress is still lingering as well, with northern France and southern United Kingdom experiencing prolonged dry conditions. 

All of these regions, taken together and if the weather stress continues, would certainly be enough to change the bearish attitude of the wheat complex. Large fund traders are carrying a record net short position in wheat, not to mention huge shorts in corn and soybeans. Even a minor weather scare could be a catalyst for a short-covering rally. With virtually no weather premium in the current price structure, it would seem to be dangerous pressing wheat at these levels. 

NAFTA was in the market’s mind again this week. Early chatter out of the White House suggested the president was poised to walk away from the long-standing trade agreement. That was quickly followed up with a ‘correction’ saying that they wanted to renegotiate the trade deals with Canada and Mexico instead. U.S. grains have been a big beneficiary of that trade deal, so any reworking will certainly have an impact on them, especially wheat and corn. 

The hard red winter wheat tour will take place next week. Timing should be good as the weather is expected to see frosts right before the tour kicks off. While frost damage can be very difficult to quantify at these later stages of wheat development, at least there will be lots of boots on the ground to check it out. 

Export sales were on the light side last week, with only 372 TMT sold. Most of the sales were for new crop, with hard red winter about half of the total at 191 TMT, while white wheat was 133 TMT. It is worth noting that China bought 63 TMT of hard red spring wheat, pointing to strong world demand for the good-quality milling wheat. 

Seasonally, wheat tends to rally into early May, and we are in that type of price action. We look for seasonal highs to form around the crop report, which this year is Wednesday, May 10. With weather an issue, not only for wheat, but corn and beans, the odds look good for a bit more to the upside. We’ll be on alert for sell signals as we near the crop report, particularly for the winter wheat in Kansas City and Chicago. Minneapolis seasonals tend to rally into early June, and with weather an issue there as well, the odds suggest waiting until that time frame to sell/hedge into that market. 

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