New Year Begins with a Reversal Higher for Wheat
After a weak end to last year and a slow start for the New Year, wheat markets reversed higher, giving us a nice weekly reversal up and an outside week higher for the Kansas City market.
Information is a bit harder to find due to the government shutdown; we didn’t get export inspections or sales reports this week. There did seem to be plenty of rumors about business coming to the U.S., but nothing could be confirmed.
The rumors centered on the prospect of much of that business being high-grade milling wheat, as buyers become increasingly concerned about the state of Argentina’s and Brazil’s crops. Heavy rains across their remaining harvest regions have caused significant flooding, likely forcing a replant of corn and soybeans, but also stalling the wheat harvest and reducing quality on wheat still in the field.
Brazil is experiencing some of the same problem, and the market is expecting that Brazil will need more imports of high quality wheat than normal, with Argentina likely being unable to meet their needs.
As Russian exports fade to the background over the next few months, and as buyers around the world look to secure supplies out through the second quarter of the calendar year, most of the milling grade needs will be met with North American supplies.
The focus on quality supplies is finally finding some footing in the U.S. futures markets, with Minneapolis and Kansas City performing notably better than Chicago this week.
Another storyline finally getting some traction in the marketplace are U.S. winter wheat plantings. Talk this week of another decline supported not only Kansas City but also Minneapolis. Early in the planting season last fall, the market expected an increase in acres, but persistent rains across the Central Plains through the northern prairies at least slowed or prohibited plantings. Crop insurance data suggests that acreage is lower than last year, and if so, would put U.S. winter wheat plantings at a 110-year low.
Needless to say, with world production down last year, a drop in winter wheat plantings for this year could keep a bullish fire under wheat prices for an extended period. It also suggests that the market will turn to spring wheat to find more acres.
Asking farmers in the Northern Plains to plant more spring wheat may not be a heavy lift, with the collapse in pulse crop prices and soybean demand far from certain. Last year we saw Northern Plains producers increase spring wheat plantings, perhaps already starting the switch.
It appears that Black Sea winter wheat plantings will be up this year, particularly for Russia. Barring a weather problem, world wheat production could get back on track, even with lower yields for spring wheat acres. Therefore, if we get a spring rally to encourage more spring wheat acres, I would think it would be a good hedging opportunity.
Owner, Spectrum Commodities
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