Wheat markets in rally mode

Wheat markets have been on an impressive rally since bottoming out mid-month and I have been getting questions from growers about when is it time to start selling new crop production. It’s good folks are thinking about incremental sales into a rising market.

Crop production threats

A fast and furious run of crop production threats coming from various sources and global regions have served as the rally catalyst over the past couple of weeks, with Europe being the epicentre right now. Minneapolis spring wheat futures have soared over $1 per bushel during this time, recovering back to the highs seen at the end of May.

Searing heat has devastated wheat fields across northern Europe, while a combination of dry conditions and extreme rain in the Black Sea region have hit output estimates. European wheat prices have surged higher on fears of further crop damage and buyers who are panicked and short-bought cash wheat.

Evidence of serious harm to crops has been escalating as the harvest season now pushes north into Germany, the European Union's second largest wheat producer, and into Scandinavia, prompting further cuts to estimates for the 28-member bloc. Paris-traded Matif wheat futures have now punched dramatically up to four-year high territory.

"The situation is catastrophic in northern Europe," Strategie Grains head analyst Andree Defois said. The consultancy last week cut its forecast for this year's soft wheat harvest in the EU, collectively the world's largest wheat grower, below 130 million tonnes. This is a six-year low and Defois said it could revise the estimate down again.

Spring wheat futures

Minneapolis December spring wheat futures posted a low of $5.44 per bushel (July 11) and as high as $6.56 (Aug. 7 at time of writing).

I don't think this wheat rally is a one-and-done affair. But, as wheat marketers, growers do need to give serious consideration in rewarding this rally with an incremental sale.

It was only a couple of weeks ago that we all lamented the depths depression wheat pricing had slumped down into. Today, we are feeling better about marketing prospects as new crop pricing opportunities push up into $7 per bushel territory on 1 CWRS 13.5 wheat.

It is going to take time for us to understand the substitution effect that is taking place as wheat crop prospects globally are being revised steadily lower, especially with respect to what is happening in Europe. That is a massive consuming region with big domestic needs.

In quick succession, Minneapolis Dec wheat futures broke above its 20-, 50-, 100- and now 200-day moving averages. Who is to say further gains are not on tap?

But with Minneapolis Dec wheat futures now testing up to important overhead resistance markers, it may be time to consider new crop pricing opportunities as a means to secure both a profitable price in a rising market and secure some off-the-combine delivery space.

That said, I’ve also been thinking back to the summer of 2010 when Russia surprised the market with a drought-encumbered crop and prices rallied into a temporary August peak, set-back a bit, but then progressively moved to higher and higher highs through fall season 2010 and into the winter of 2011. I wonder if we might see a repeat performance?

Bottom line

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.