With weather posing multiple threats to U.S. wheat fields over the next month or two, it’s still too early to write off this year’s prospects. But without some serious troubles being bullish remains difficult.
Futures in all three markets may have already established seasonal highs. Spring wheat can always rally during the summer if dry weather hits the northern Plains. But the die is cast for winter wheat by the time USDA comes out with its first forecast of yields May 10.
Already nearly 25% of the winter wheat crop is in areas affected by at least moderate drought. Yet crop ratings appear to be holding up in states issuing reports, some of them now on a weekly basis. A last gasp of winter this week could damage some fields that emerged from dormancy winter, and April frosts can’t be ruled out either. But hurting production enough to make a difference won’t be easy.
Plenty of 2016 crop wheat will be left over at the end of the marketing year May 31 for a buffer. USDA cut its estimate of that total by 10 million bushels, not due to greater demand but to lower imports. The agency may have to go in the other direction ultimately, because sales and shipments aren’t robust.
That pattern could continue into the 2017 marketing year that begins June 1. Demand could pick up if weather problems strike one, or likely more, of the world’s other major growing regions. Western Europe appears to be recovering from a dry start to its winter wheat crop, and the last month was on the dry side in Ukraine and parts of Russia. But so far crop conditions and yield estimates are holding up.
The main hope for a significant rally likely rests on Australia. Development of an El Nino by fall is looking more probable, though it’s still only a little better than a 50-50 proposition. In addition to hurting yields in Australia, these warming events in the equatorial Pacific also can affect wheat yields in the U.S.
In the meantime, futures are testing support on daily price charts, even as longer-term charts hint at a market that’s finally turning the corner. For now, with prices below break-even, having some hedges in place looks prudent. I’ve recommended being 50% priced, mostly using far deferred soft red winter wheat contracts for liquidity and carry. Spreads have come in some but still offer sales in the middle to top of my projected selling ranges. If the market rallies that carry should tighten, with most of the gain in the front even. If not, the higher deferred prices will look better than nothing.
More from Farm Futures:
Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Market Review on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat futures that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.