Wheat Market Finds Strong Support on Weather
Wheat began the week with follow-through selling from last week’s drawdown. About midweek, however, prices began to rally as chatter increased about dry conditions in the southern Canadian prairies and the Black Sea. A massive hailstorm through the western central Plains wiped out thousands of acres, and the trade was also taking note of that as well.
Ever since the devastating drought in Australia last year, the wheat market has been on alert that one more production problem in a major exporter would jolt it out of its longstanding bearish/rangebound attitude.
Here in the U.S., while hard red winter wheat in the Plains clearly has a problem, as a nation the U.S. is forecast to harvest a larger crop than last year thanks largely to a big jump in spring wheat acres. So, our problem wasn’t enough.
Now, we look to the Black Sea as its growing season suddenly turns dry after an easy fall and winter. Four weeks of below-normal precip, and no precip in some regions, has turned eastern Ukraine through southern Russia and into western Kazakhstan into a developing concern. It’s not critical at this point, but another week or two of drying, and it starts to get real. Forecasts suggest that dryness will continue.
Added to that, Canada is also grabbing headlines about dryness in the southern prairies, major spring wheat and durum country. That dry pocket includes northeast Montana and much of North Dakota. Temps are also expected to get much above normal and exacerbate the problem. While Minneapolis has mostly been a follower of the winter wheats lately, it will stand on its own and become the leader if that crop gets into trouble.
It’s all about weather this time of year. But the self-induced trade spats clearly take away some of the enthusiasm. Corn got a shot in the arm on Friday when China dropped its import tariff on U.S. sorghum. Corn is already in a demand-driven bull market with world supplies tightening significantly after Argentina’s drought. This will surely help to underpin the corn complex, which in turn offers support to wheat.
I look for volatility to continue through at least another few weeks. And that is just for wheat. Corn and soybeans are also entering into their weather seasons. Longer term weather forecasts are suggesting drying conditions in the western Midwest for the early summer. We’ll have to see just how dry it actually is. Precip is also forecast to be below normal during the summer. Long-range forecasts are tough to get accurate, but this certainly gives us something to think about.
Seasonal tendencies have wheat topping in early May, which it did. But the bears can’t seem to shake the market loose. The market is too focused on the Black Sea and Canadian potential issues and will likely stay well supported until forecasts change. If the weather stays dry, prices could move significantly higher and would likely peak in early July instead of forming lows in that seasonal window.
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