Wheat market steadies to start 2018

Current wheat markets remain far below their summer rally highs. The markets stabilized and rose modestly from their mid-December lows, but price pressure from the well-supplied global trade remains the dominant theme, which continues to limit wheat rally potential.

Export news was light, which is not surprising after coming through the holiday period.

The trade has mostly shrugged off the bitterly cold temperatures that dipped deep down in the United States Plains hard red winter wheat areas on the holiday break. Winterkill fears are usually overblown this time of year anyways.

Cold weather damage

The recent bout of extreme cold did damage as far south as southern Kansas and Oklahoma. While there was some light protective snow cover across the northern U.S. Plains, exposed areas in southern Kansas and Oklahoma were vulnerable to winter kill.

The market will not be able to gauge the impact of the cold weather until the crop exits dormancy this spring. That, along with the recognition that global feed wheat supplies are plentiful, has limited the rally potential for the wheat market.

Future possibilities

There is always a chance for a random bounce higher in U.S. wheat futures because the speculative crowd is short wheat futures - notably Chicago soft red winter wheat - and could quickly move to cover positions if resistance lines on price charts are breached. But the reason why rallies fail is that offshore cash pricing, largely set by export competitors like Russia and Ukraine, don’t care if the U.S. price moves higher. That's because they hold large supplies that can be quickly exported as logistics allow for months ahead yet.

In the meantime, the offshore world price grinds along. 

Spring wheat

As a subset wheat class, spring wheat is still trying to balance three elements:

  1. The need to create sufficient supply of market-ready high protein in a protein deficit market
  2. The reality that spring wheat is still expensive compared to other wheat classes
  3. Next year’s crop is likely to replenish the protein supply

Spring wheat is in a tough spot because once protein imbalance issues are resolved, a new price equilibrium is likely to develop where higher protein wheat loses some of the price premium it carried much of the past year over lower protein wheats.

USDA crop reports

Grain markets remain quiet as traders await the release of the U.S. Department of Agriculture’s big round of crop reports on Jan. 12.

This week, grain markets remain quiet as traders await the release of the U.S. Department of Agriculture’s big round of crop reports on Jan. 12. There are the final crop production, quarterly grain stocks, winter wheat seedings, and U.S./world supply/demand. This is the biggest single USDA data release of the year, and historically is a day that has the potential to spur some big price moves.

Trader consensus ahead of the reports is that USDA number will be bearish soybeans (lowered demand and exports) and corn (higher 2017 production). U.S. winter wheat acres could be the smallest on record for the last 100 years, but is that idea already baked into the market amid still massive global wheat supply?

Bottom line

There's still a large worldwide supply of wheat, which appears to be keeping prices low right now. Prices have increased some in January, though, compared to low prices in December.

Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call 204-654-4290 or visit www.pfcanada.com to find out more about his services.