Wheat Market Finds A Way To Rally
Volatility was the feature this week across many of the commodity and equity markets, fueled by a sharp increase in trade tariff plans by both the US and China.
The tit-for-tat tariffs are getting into some serious dollars, and the markets aren’t appreciating being pawns in an ego-crazed, completely unnecessary trade war.
Weather was also a main issue for the grain complex. Dry conditions look to continue in hard red winter wheat country along with some potential freeze damage in both hard and soft red. Western plains producers have all but zeroed out their wheat crop, while the remaining wheat crop barely hangs on.
There does not appear to be much relief on the way as the forecast for the next two weeks shows mostly more dryness in the key growing areas. Some weekend scattered rains were hinted at but wouldn’t be nearly enough to help extremely stressed wheat recover.
Crop conditions showed a slightly decline for Kansas and generally steady for most other states in the plains. Overall, hard red winter wheat crop conditions are record low for this time of year. Yield estimates for hard red winter wheat in the plains are dropping dramatically and it looks like the US is on the way to another short crop after last year’s poor performance.
Spring wheat, on the other hand, was staring down the barrel of very negative fundamentals, with a big bump in acres and lots of moisture so far this spring. However, the moisture is mostly snow and temps have been well below normal for weeks, leaving producers anxiously waiting to get into the fields across the Northern Plains.
The slow planting start will push key production stages into the heat of summer and could also lead to fewer acres. Thus, late in the week, Minneapolis actually took over leadership of the wheat complex to the upside. That said, it quickly rallied to key resistance levels at the old trading range lows from the winter, so we’ll see if it can rally past those important price levels.
Export sales were on the low end of expectations this week at only 309 TMT (200 TMT for new crop). Sales are running at 92% of projections, behind the pace needed to meet those projections in just the 8 weeks left in the marketing year. With another supply/demand report coming on Tuesday, we could see USDA make another downward adjustment to export estimates.
For now, though, the biggest concern is the poor crop developing in the plains, which is obviously bullish. We do need to remain mindful of how quickly we can price ourselves out of the world market, and with Europe and the Black Sea region looking at the potential for very good crops this season, it will be tough to rally wheat to any sizeable level unless they also run into production problems.
That said, Kansas City futures did close above the key resistance levels of the gap and the old Feb highs. This suggests more upside in the near term, and we could target the early March highs. Chicago has not closed above the same resistance levels yet, and like mentioned above, Minneapolis has rallied up to its key resistance level of the old trading range low. Kansas City can easily lead the way higher, but Minneapolis has some potential bullishness of its own if it can break above those resistance levels.
Seasonally, winter wheat has a strong tendency to peak in early May; early June for spring wheat. The fundamentals this year could support that kind of price action, but it would be difficult to move beyond that time window unless we see production issues in another major growing region or in corn/soybeans here in the US.
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