- Wheat market, particularly the spring wheat class made extraordinary price gains this spring and rally remains ongoing this week
- Ongoing weather concerns lifted spring wheat market as traders point to the heat and dryness that has stressed crops in the northern U.S., southern Western Canada, Europe and Black Sea
- For exporting countries such as Canada, U.S., the EU, Russia and Argentina, wheat supplies are not as monstrous as the market bears tell us
The wheat market, particularly the spring wheat class, has made some rather extraordinary price gains this spring season and the rally remains ongoing this week.
In the past two weeks since last commenting on the wheat market, Minneapolis spring wheat futures have gained 45 cents per bushel (June 6 to 20) and are up $1.05 per bushel since the rally began just over a month ago.
Ongoing weather concerns have lifted the spring wheat market as traders point to the heat and dryness that has stressed crops in the northern U.S. Plains, southern areas of Western Canada, Europe and the Black Sea region. And rains this past weekend were seen as not as good enough in South Dakota.
One would now have to go back almost 30 years to find a U.S. spring wheat crop in this poor of condition. Summary: Spring wheat market trending strongest amongst the grain markets.
Concerns were further heightened by the U.S. Department of Agriculture weekly crop condition report on June 19 showing the U.S. spring wheat crop continues to deteriorate. USDA now pegs just 41 per cent of the U.S. spring wheat crop in “good” to “excellent” shape, a drop of four points from the previous week. Meanwhile, USDA estimated 27 per cent of the crop in “poor” to “very poor” shape, with an increase of seven points from last week.
The decline in crop condition was a bullish surprise, as traders expected modest rains received last week to improve the ratings in at least some states. One would now have to go back almost 30 years to find a U.S. spring wheat crop in this poor of condition.
Winter wheat futures have taken a followers’ role to spring wheat, which is impressive given that harvest is underway. USDA reports that as of June 18, U.S. farmers have brought in 28 per cent of the crop. Related winter wheat harvest-related, selling price pressure should ease once harvest reaches the halfway mark.
In 2016, there were record-high yields across major crop sectors around the world. This year we are probably going to see the U.S. crop ratings not be as good. It is pretty hard to repeat the excellent crop ratings that the U.S. managed during the last year or two.
And while there has been a lot of talk about huge global supplies in the wheat market, sometimes things get misconstrued. Global wheat supplies continue to expand, thanks to production from the Black Sea region, Argentina and Brazil. But the large amount of wheat in China, which is sitting on half of the world's wheat carryout, is distorting the market picture.
For exporting countries such as Canada, the U.S., the EU, Russia and Argentina, wheat supplies are not as monstrous as the market bears would have us believe. And hard red spring will continue to do better than the rest of the wheat complex. The question is when do price gains get ahead of themselves?
Today, it’s impossible to be statistically precise estimating 2017 wheat production, quality and protein outcomes. Thus, nobody can say with certainty the wheat market needs to do one thing or another, or price needs to go this high, or for how long the market rally must continue to get the job done. I suspect this market is moving even faster than the fundamentals would warrant, but that doesn’t mean the rally needs to stop here today.
The only logical conclusion one can make today is this: Is the perception of crop size getting bigger or smaller? I’d argue the answer is still smaller or at minimum is still in the rapid adjustment of what small means.