Quality Splits the Wheat Markets, Gartner Says
Spring wheat and winter wheat moved further apart this week as Minneapolis surged higher while KC and Chicago chopped sideways. Coming into this crop year, supplies of high-quality milling wheat were tight. So far this year, the harvest of hard red winter wheat in the southern Plains is showing much-below-normal protein, and warm/dry conditions across the northern Plains along with planting delays in the northern Canadian Prairies are stoking fears of a protein squeeze.
Minneapolis is rarely the leader of the wheat complex, so when it is there is a strong reason. The hi-pro shortage has been brewing for a few years, and traders are finally taking the situation seriously. So, how far will Minneapolis run? Obviously, no one knows, but years past have shown some huge springtime rallies. Seasonally, spring wheat tends to rally into early June before turning lower into harvest.
Drought-like conditions across almost the entire northern Plains and up into Canada are only amplifying the sudden attention to spring wheat issues. Weather forecasts for the next 10 days suggest more heat and dryness, but beyond that, forecasts are beginning to bring in a more consistent rain pattern through the summer across the north.
So, considering seasonality and forecasts, I would suggest starting to sell some spring wheat – especially if you have old crop left. This is the move we were hoping to get. Sell in increments so you have some ammo for the next week or so. If the market continues to push higher into the summer, get more aggressive selling new crop.
As for winter wheat, harvest in Kansas usually stamps the lows. Futures have been hovering near contract lows for weeks and it is likely that we’ll still see some pressure in the near term. Harvest is expected to start in southern Kansas next week, so it shouldn’t be long before combines are rolling in central Kansas, typically the time when harvest lows are established. I would expect harvest to move quickly this year, with acres down significantly. Reports are confirming low yields and low protein.
Export sales were very impressive last week at 781 TMT, of which 402 TMT were hard red winter wheat including Egypt’s purchase of 115 TMT. Spring wheat made up 128 TMT, with China taking another 80 TMT old crop (already shipped). Looks like they, too, are scrambling to secure spring wheat as they’ve been in the market the last few weeks.
Speaking of China, it looks like the North China Plain continues to experience significant drought. This area produces much of the country’s winter wheat, but most of that is irrigated. However, it also produces a large percentage of the country’s corn, which is not irrigated. There is evidence that the hot and dry conditions are expanding into the northeast region, where spring wheat and corn are grown. Anything that happens in China is a big deal, and drought is a very big deal. China holds literally half of the world’s wheat carryover and is expected to hold 21% of the world’s corn stocks by the end of this marketing year.
Longer range weather forecasts are also bringing in warm and dry conditions across much of southern Europe and the Black Sea region, particularly in July and August. With the U.S. already looking at corn production issues and if China’s drought sticks around, the grain complex could see a major turnaround in a matter of weeks. It seems like this summer holds a great deal of potential upside in the grains, especially with the large traders leaning so hard on the short side.
This is no time to be bearish any of the grain complex, particularly wheat and corn. I look for seasonal lows in wheat by mid-June, and I suggest reowning sold wheat with September call options for a potential rally through the summer. I think corn has that potential as well.
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