Wheat hasn’t offered growers a shot at a profit during 2019. But if the opportunity comes, it’s likely to come from the same source as last the last couple of years: A rally in Minneapolis that takes winter wheat along for the ride.
To be sure, the winter wheat contracts have a few potentially bullish tricks of their own. Heavy rains dented the SRW crop in the Midwest and raised concerns in parts of Oklahoma and perhaps Kansas too.
But spring wheat has the most bullish chart right now, though that might seem unlikely after Monday’s first ratings for the crop came in abnormally high. Sometimes ratings mislead, especially in key states like North Dakota, where a lot can get missed in sparsely populated areas. And the Minneapolis market’s real strength lately may be coming from outside the U.S.
Last year the trigger was severe drought in northern Europe, a competitor in the high protein wheat market. This year the biggest source of concern is much closer to home: The Canadian Prairies, where dry weather this spring raised red flags. Storms moved through parts of the region late this week, and forecasts show at least some potential for showers over the next two weeks with summer weather escaping major drought in most areas.
El Nino drought in Australia also played into the fall 2018 rally. Rains for planting this year sank prices down under. But El Nino persists, and the winter there looks dry again. Add in some concerns about the lower than expected production in Russia, and the worries were enough to trigger a burst of short covering from funds who have been bearish wheat, and still are short.
World weather is crucial to wheat, because the U.S. supply and demand balance sheet shows ending stocks a year from now staying above 1 billion bushels. USDA won’t put out a class-by-class breakdown until July, but my current forecasts show SRW stocks tightening the most. White and HRW also look tighter, though spring wheat inventories could build if the crop is as big as crop ratings suggest.
Hopes for rallies also come from seasonal charts, which show all three markets trying to prove they’ve turned a corner. Realistically, that opportunity may not come until later this summer, when more is known about production here and around the world. But this is normally the time of year when markets are making clear bearish moves into harvest lows, so their ability to rally in May was a positive sign.
With prices at unprofitable levels, I recommend holding off on further new crop sales. Those who need downside protection and can store wheat on-farm into winter can consider selling out-of-the-money winter or spring 2020 calls to pay for September puts.
Shrinking carries in SRW suggest the market is worried about supplies. HRW carry is headed the other way, paying hedgers more than 7 cents a month. Selling the carry and using some of the expected proceeds on calls is one strategy for growers in the Plains with storage into spring and good yields or low costs. Weak HRW prices and a short corn crop could also boost feed usage this summer.
U.S. wheat supplies don’t look like they will tighten much in the year, but prices could rise if shorter crops in other exporting regions raise world market levels.
Spring wheat stocks could rise if the crop is as big as USDA crop ratings suggest. Soft red winter wheat inventories could be the tightest.
Heavy May rains hurt winter wheat fields from Oklahoma to Ohio but conditions on the Plains and Pacific Northwest look decent.
Drought emerged over parts of the Canadian Prairies this spring, but forecasts are more encouraging for rain.
A move to take out March highs in Minneapolis could mean the market is trying to turn bullish rather than following the season trend for lower prices into the summer and fall.
Worries about a smaller corn crop and good HRW yield potential have shrunk the spread between the two crops, which could increase use of feed wheat this summer.
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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 www.FarmFutures.com 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.