Wheat markets bounce on spring weather worries

Wheat seed

Highlights

  • Wheat grabbed market headlines and ran higher in response to recent weather in the central and southern U.S. Plains
  • Adequately assessing damage for the U.S. hard red winter crop will take time
  • Canadian cash wheat prices also benefited from a weakening loonie

It has been an interesting start to May. Lowly wheat has grabbed the market headlines and run higher, led by Kansas City hard red winter wheat futures, with Chicago SRW soft red winter and Minneapolis spring wheat markets also along for the ride.

Traders pushed winter wheat futures sharply higher Monday in response to last weekend’s winter storm across the American central and southern plains. Heavy snow, high winds and cold temperatures damaged the HRW wheat crop that is more advanced than usual for this time of year.

U.S. crop damage

Up to a foot of snow fell in western Kansas and western Oklahoma and was combined with strong winds. That led to some lodging of the United States winter wheat crop. Cold temperatures, particularly in Kansas, also caused damage to about a third of the crop, especially in areas where snow cover was minimal, with about 10 per cent of the crop potentially facing irreversible damage.

U.S. wheat futures pushed upward though their 50, 100 and 200-day moving averages on the price charts, triggering added buying from the managed money crowd.

Adequately assessing damage for the U.S. HRW crop will take time, and I suspect the extreme nature of last weekend’s weather event will compromise the credibility of 2017 U.S. Quality Council's winter wheat tour happening this week. Still, the tour comments and results will be closely scrutinized.

Additional buying

From the market perspective, U.S. wheat futures have pushed upward though their respective 50, 100 and 200-day moving averages on the price charts. This triggered additional buying from the managed money crowd (speculative funds) who were collectively short a record amount of ag commodities as of the end of April.

Whether the unfavourable finish to April U.S. weather will be enough to scare speculative funds out of their enormous short futures positions remains to be seen, though that process was at least initiated to start the week. I suspect that seasoned traders will wait to sell again at the first sign of any rally stalling out.

Spring wheat

At the time of writing on May 2, Minneapolis July spring wheat futures leapt up to its mid-February high of $5.70 to $5.75 per bushel before easing back to just below that level.

Field work and seeding prospects on both sides of the Canada/U.S. border is slowed due to uncooperative weather which has slowed spring. Areas of U.S. winter wheat production were also hammered by poor weather last weekend.

Both commercial and speculative fund traders supported HRS wheat futures, which could lead to a further test of that key resistance zone of $5.70 to $5.75 per bushel. Futures spreads are strengthening, a sign of supportive commercial activity.

In Canada

On this side of the border, Canadian spring wheat cash bids also benefited from a weakening loonie, dipping below the 73 US cent level, a 14-month low.

Western Canada cash bids for No. 1 CWRS 13.5 per cent protein are now seen spot $6.92 to $7.13 per bushel in Alberta, $6.75 to $7 a bushel in Manitoba, and $6.50 to $6.75 in Saskatchewan. Expect another six to 10 cent premium for July delivery.

Conventional thinking is that exhaustion of the current rally will be followed by a period of consolidation as the market assesses the crop damage to hard red wheat and spring red wheat in the United States during the first half May. North American seeding and emergence issues and the degree to which the managed funds lighten short positions will also play a role.

Remember though, the latest International Grains Council's estimates still suggest 2017-2018 could be a carbon copy of the current crop year on world wheat supply. It forecasts only a one million tonne reduction in global wheat ending stocks over the upcoming year, with ending stocks/use expected to improve only slightly to a bearish 32.4 per cent.

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.