- Minneapolis spring wheat futures have charged $2.40 a bushel higher since mid-May
- Hot/dry conditions in parts of North America have spring wheat prices hitting new four year highs
- Conditions in Western Canada are not as dire as just south of the border
Weather market silly season is now underway. There's heightened grain price volatility drawn from the June 30 United States Department of Agriculture acreage and grain stocks reports and the Statistics Canada acreage report on June 29. The release of both reports followed by national holidays both in Canada and the United States results in disrupted market action to start this week.
Of course, weather is the driving influence on markets to the end of June and now starting into July. Leadership in the overall grain market rally at this time remains unequivocally with spring wheat.
Spring wheat highs
Minneapolis spring wheat futures have charged an astounding $2.40 a bushel higher since this upturn began in mid-May to the American Independence Day holiday on July 4. Hot/dry, drought-like conditions across an expanding territory of the Northern U.S. Plains and now into the southern Canadian Prairies have spring wheat prices hitting new four year highs in aggressive rally action that leads all other grain markets.
In these wild weather markets, price trend is up till it stops.
Power of the weather market
On July 4, spring wheat futures are tapping US$8 a bushel. Depending on delivery location on this side of the border, we are now seeing grain company cash bids for new crop No. 1 Canadian Western Red Spring 13.5 wheat soaring up to C$8.75 to just over $9 a bushel for fall delivery! No one - myself admittedly included - dared think such an opportunity possible two months ago, but that’s the power of a weather market.
Winter wheat futures are also trending higher, but those markets (Chicago and Kansas City) are essentially playing catch-up with Minneapolis. Anecdotal yield and protein numbers for this year’s U.S. winter wheat harvest have varied.
With a parabolic rally in spring wheat well under way, there is plenty of discussion about where the top could be. The honest answer, at this time, is that no can know.
U.S. weather outlook
The latest U.S. National Drought Monitor shows drought conditions have worsened across the Dakotas and Montana over the past week, and the forecast offers little hope for meaningful near-term rain relief. Temperatures climbed to the mid to upper 30 C range in some areas.
In North Dakota, extreme drought (D3) now encompasses 25 per cent of the state, compared to 7.7 per cent last week. In South Dakota, 90.7 per cent of the state is now covered by some form of drought, compared to 83.7 per cent last week and a state of emergency has been declared.
It should be noted that dryness issues are now creeping up into Saskatchewan. Dryness has been confined mostly to the southwest region of Saskatchewan until now, but the July forecasts suggest a move to warmer/drier conditions into the 14-day outlook across a broader territory to encompass more to the north and east in Saskatchewan and west into southern Alberta.
However at this time, conditions in Western Canada are not as dire as just south of the border.
Still, with emotions and perception hyper-sensitive, much depends on local subsoil, winds and actual temperatures. If the latest forecast bias verifies, timing is poor because crop status across the southern Canadian Prairies would be in its prime reproduction phase - a time of high moisture requirement.
As a result, traders are adding more weather premium into prices, and the dramatic rally has triggered further technical-based buying in the futures markets as well.
It's impossible to pick tops in such a market condition. As long as sentiment continues to believe the U.S. spring wheat crop is getting smaller, positive price action will continue. But in the next two weeks or so, it will probably be too late to revive crop conditions for U.S. Northern Plains - a time when trader sentiment shifts from “crops getting smaller” to a realization of “the crop is what it is.”
If crop conditions in Western Canada stabilize this month and the northwest U.S. crop disaster reaches a point where it can’t get any worse because plant vegetative life has expired, perhaps it will be time for this explosive bull market to at least correct lower. But in these wild weather markets, honestly, price trend is up until it stops.