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Wheat Market Gets Nervous About Early Crop Growth

Wheat market fundamentals are largely still bearish, but it is worth noting that Kansas City and Minneapolis have regained some of their losses to Chicago.

Weather appears to be the main reason that traders are less aggressive in selling the hard wheats against the soft Chicago market. Unseasonably warm temps across the prairies, from Texas to Montana, are bringing winter wheat out of dormancy earlier than normal in the south and drying out soils in the north.

With plenty of moisture in the southern Plains, warm temps are expected to encourage wheat growth. If the crop advances too quickly, it becomes more vulnerable to freezing temps, which not only can occur as late as late April, but the longer range forecasts are calling for a cool spring anyway in the south. 

Frost is a tricky fundamental to get your hands around. If it occurs when wheat is in the later stages of development, not only is the wheat more vulnerable but it also becomes harder to actually assess the damage. The plant won’t die but often becomes sterile, and kernels won’t develop in the head. It is difficult to quantify the extent of the damage, and usually it’s late in the growing season or even until harvest before we really can see the results.

Then we look at the ultra-warm winter across the north where some high-quality winter wheat is grown and the majority of the spring wheat. The warm and dry winter is already making producers nervous about moisture availability when it’s time to plant. You add that to the chatter about spring wheat plantings being down again and it makes for a potential big trade in the spring wheat market as well – particularly against the Chicago market. But that’s down the road a bit.

Last week, Egypt finally was able to piece together a large purchase. They bought 240 TMT - 180 TMT from Russia and 60 TMT from France, average price $194/MT delivered. It was their largest purchase since October, probably trying to catch up with the last few weeks of almost no sales because of the uncertainty about ergot and financing. Apparently, only five cargoes were offered, so there is still a large degree of wariness among would-be sellers.

Last week’s export sales for wheat continue to be so-so. Only 307 TMT were sold, within the trade estimates but not enough to catch up to USDA’s estimates. Year-to-date sales are running 83% of projections vs. the five-year average of 89%. Corn sales at 1.3 MMT were well above the week’s estimate but there, too, the total sales are running behind; only 61% sold vs. the five-year average of 74%. Soybean sales this week of 596 TMT keep them right on pace with 91% sold vs. the average of 92%.

The Commitment of Traders report raised a few eyebrows. Chicago wheat longs were about unchanged but shorts increased yet again, keeping the net short among managed futures traders near a record high. Kansas City actually saw a reduction in the net short – likely due to the warm weather. Corn saw a huge jump in the short position while soybeans had a reduction in shorts and increase in longs but are still net short.

All in all, wheat prices are still drifting lower or in a range at best, depending on which contracts you watch. Fundamentals are bearish, but the growing season is just around the corner and anything can happen. I would look for prices to continue pushing lower until we actually get weather problems either here in the U.S. or elsewhere across the Northern Hemisphere.

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