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Wheat Outlook - Nothing soft about SRW

Reasons for wheat rally are in the eye of the beholder

End users of wheat are notoriously picky about what they buy. Bakers and pasta chefs can be fanatics.

But in the futures market for the most part wheat is wheat. Money goes where liquidity is. And in the wheat market that’s the Chicago Soft Red Winter Wheat contract, which led the market higher last week for a lot of reasons.

SRW accounted for less than 15% of this year’s crop. But it accounts for two thirds of total futures volume in wheat and dwarfs the other contracts in options. Part of that is location. When HRW was known as Kansas City Wheat, it was traded in that city. The action was in Chicago, and that’s where people went to trade wheat.

Big speculators have been short SRW for most of the past seven years. Prices have been trending slowly higher since bottoming three years ago, at least in fits and starts. But nearby futures topped out this summer below the 2018 high, and the fall rebound is below that. The long-term chart for HRW is ugly; it reached the lowest level since 2005 in September. The Minneapolis chart looked almost as bad until a late harvest was compounded by a couple feet of snow in North Dakota.

But buyers are starting to get interest in wheat again. That snow, which extended into Canada helped. Australia is suffering from a third year of drought and dry weather is also affecting production in Argentina. Parts of the Black Sea growing region are also trending a little drier, so bears are running for cover.

That doesn’t mean they’re bullish. But they’re not as bearish, which is a start.

The rally in SRW doesn’t do HRW growers much good unless they’re willing to cross hedge. But carry spreads are narrowing for both classes of winter wheat, reflecting stronger basis. SRW basis remains on fire. It’s in strong hands of commercial hedgers, for one. And supplies of the class are tightening a bit after a smaller crop, despite weak export demand. My projection for SRW carryout shows supplies on May 31, 2020 falling to the lowest level in six years.

December futures for both winter wheats broke past the top of their uptrending channels off those September lows, putting SRW closer to June highs. They could keep going if November USDA reports give corn or soybeans a big boost. The snow on the northern Plains put around 50 million bushels of spring wheat at risk, which could show up in the government’s resurvey of small grains in November as well.

Otherwise the market doesn’t rally have a good reason to rally for now. I’ve recommended making more sales, though it’s hard to do in HRW at these levels. But on paper at least the wheat market looks like it has potential in 2020. My first forecast of next year’s supply and demand shows carryout tightening, perhaps falling below 900 million bushels. July SRW futures are already following the pattern seen in bullish years, though the market normally doesn’t make a turn until seedings data comes out in January.

July SRW are close to my projected selling range of $5.49 to $6.09, so initial new crop hedges might be in order. Otherwise focus on old crop for now.


Our first estimates for 2020 wheat show tightening stocks with better export potential.



Snow that covered the northern Plains also extended into the Canadian Prairies, which where already wet.


U.S. wheat stocks are slowly tightening, which could support the market into 2020.


July SRW futures are trending higher, which could be setting he contract on the path seen in years of rising prices into winter.

Download a complete version of the outlook with extensive charts and analysis using the Download button at the end of this report.

More from Farm Futures:

Corn Outlook

Soybean Outlook

Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Market Review on he writes weekly reviews for corn, soybeans, and wheat futures that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.

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