Spring wheat leads rally higher

Market Focus

Highlights

  • Cash and futures prices for wheat are in the process of factoring in a low-protein US winter wheat crop
  • Millers are short bought and have upped their demand
  • Additional bullish momentum for spring wheat prices now comes from increasingly hot/dry conditions

A funny thing happened while we continually obsessed about oilseed and pulse markets this spring - wheat prices advanced notably higher in the past three weeks, led by the spring wheat class. Minneapolis spring wheat futures, in fact, gained 60 cents per bushel during this period - now testing the highest levels in a year.

Early United States hard red winter wheat harvest results underscore heightened industry concern of a second straight year of low protein. That shifts the market’s focus to prospects for the North American spring wheat crop, a higher-protein wheat class.

Drained nutrients

Along with excessive moisture that tends to lower protein content, crop experts also point to record yields in Kansas and Oklahoma last year that left soils drained of nutrients. Low wheat prices last fall discouraged farmers from spending money to replenish the soil with nitrogen fertilizer, a common protein-booster, ahead of planting this latest HRW crop.

A funny thing happened while we obsessed about oilseed and pulse markets this spring...wheat prices have advanced notably higher.

So then, cash and futures prices for wheat are in the process of factoring in a low-protein U.S. winter wheat crop. Such expectations have in turn lifted the price premium that Minneapolis spring wheat futures carry over mid-grade Kansas City HRW wheat futures on June 6 to US$1.60 a bushel, the largest premium of the 2016-2017 marketing year.

Millers are short bought and have upped their demand, adding increased amounts of high-priced spring wheat to their flour blends over the past year. That trend will continue if protein remains low again for this year’s HRW harvest.

Hot/dry conditions

Additional bullish momentum for spring wheat prices now comes with news of increasingly hot/dry conditions impacting North American spring wheat areas - the area of the northern U.S. Plains and southern Canadian Prairies. Conversely, a wetter spring across northern areas of Saskatchewan and Alberta has delayed seeding to the point where perhaps 1.5 million acres of intended spring wheat acres will not be planted this year.

The latest weekly crop condition report from United States Department of Agriculture pegged only 55 per cent of the spring wheat crop in "good" to "excellent" shape. That’s a dramatic seven percentage point drop from the previous week. The result is an extra jump this week to Minneapolis spring wheat futures as traders expected just a one-point drop from week-ago.

Markets moving sideways

Interestingly enough, winter wheat futures prices for Chicago and Kansas City show those markets moving more along a sideways pattern. No major excitement there. Large global wheat supplies keep a lid on those markets, even with lower planted area.

But the Minneapolis spring wheat futures specifically are trending notably higher. Strong demand remains for higher protein wheats, reflected in both old- and new crop strengthening cash basis and net futures prices, and the dry/hot weather issues still developing through the northern U.S. Plains, like the Dakotas and into the southern Canadian Prairies, could reduce yields if they persist as is generally forecast for now.

Line company old crop cash bids for No. 1 Canadian Western Red Spring Wheat 13.5 protein wheat have crossed into $7- per- bushel territory across many areas of the Prairies this week - the highest price levels of the marketing year.

But spring wheat futures charts are exhibiting “blow-off” rally characteristics. And while the trend remains up, up and away now, blow-off tops tend to be associated with dramatic downside corrections. A near-term top will likely be associated with any forecast of an inch rain event for the northern U.S. Plains and southern Canadian Prairies.

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.

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