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Wheat Markets Shows Signs Of A Top

Big event needed to push wheat higher, analyst says.

Wheat markets had a huge swing in the spreads this week, with Kansas City losing sharply to Chicago and even more sharply to Minneapolis.

With hard red winter wheat harvest finally getting rolling in the southern plains, the cash pressure kept selling pressure on the Kansas City futures. Chicago managed to find buying support on Russian/Ukrainian dryness. Minneapolis stood out from the pack as dryness continued in the Canadian Prairies and began to move south into the U.S. northern Plains.

SovEcon lowered its estimate for Russian wheat production with hints of more reductions if weather stayed hot and dry. In the southern region, the wet spring is still providing decent subsoil moisture, but another two weeks of current weather conditions would cause significant stress. The Volga river region and further into Kazakhstan has been mostly dry since spring and has seen notable stress. That said, the two/three-week weather forecast calls for improved rain chances.

A new fundamental element was added to the mix this week, and it wasn’t bullish. The president announced tariffs would be imposed on goods from Mexico, starting Monday, if they didn’t step up efforts to stem the flow of migrants. The markets certainly didn’t like that prospect and came under heavy selling pressure, as those tariffs would have far reaching effects, with a quicker impact than the Chinese tariffs. Talks are ongoing, and we’ll see what happens by Monday.

In other political influence news, USDA finally confirmed that Prevent Plant acres were not eligible for the Market Facilitation Program. The general consensus is that we’ll likely see more acres get planted as a result, with the incentive being toward soybeans on an expected bigger payout and it being very late for corn plantings. It’s risky for producers to mud a crop in and likely get lower yields dragging down APH’s, but it appears that the market is expecting a big push for planted acres even well past the Prevent Plant insurance deadlines. Thus, the upcoming June plantings report won’t be remotely accurate.

Export sales were decent last week at 476 TMT. That said, most of the sales are to captive markets and US FOB offers are well above world offers. World prices moved slightly higher this week but are still cheap enough to capture most competitive business.

Russian prices will ultimately lead the market, and with weather becoming an issue now in two major regions of Russia and creeping into Ukraine, it is very possible that world prices could get another bump higher. With the calendar pushing into mid-June, however, the growing season is in the later stages, so a weather issue would have to occur within the next month for it to really matter. And again, the forecast does call for at least some rain about two weeks out.

Technically, the charts suggest that winter wheats have found their highs, with the outside day lower on Tuesday confirmed by Wednesday’s weakness. Thursday saw an outside day higher, but no follow through on Friday. In my view, this week’s high and last month’s low will likely form the parameters of a trading range that wheat could be in for the foreseeable future.

It will take a big event to push wheat beyond this week’s high. Russian dryness could do that. Corn still has the capacity to do that later in the summer, with the late plantings pushing pollination way deeper into the summer’s heat – which would be after the wheat harvest.

Spring wheat showed some leadership late this week, and weather could elevate that market higher yet. But with a huge harvest beginning in the plains, and expectations of big yields all the way up to Montana, Kansas City will struggle to move higher. Chicago will respond to Russian issues and the lack of quality soft red supplies, but it’s harvest has also started and likely will get at least some harvest pressure.


Louise Gartner,
Owner, Spectrum Commodities

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