Weather dominates wheat market

(Agriculture.com) – The weather forecaster was busy this week in the wheat complex. Cold temps in soft red country, heat in hard red winter country, and rains in the northern Plains. There was something for everyone.

It looks like the cold Friday morning in the eastern Midwest did little damage, if any. Temps are expected to be cold again Sunday and Monday mornings, but the latest forecasts have lowered the frost potential.

Winter wheat markets had plenty of choppy price action early in the week with a strong finish on Friday on the heels of a big jump in corn prices. Minneapolis continued to get pummeled on an improving planting season and spread liquidation.

In the southern plains, heat is the issue. The Texas panhandle and southwest Oklahoma are getting the worst of the heat, which is expected to move north into Kansas next week. So far, moisture has been abundant for most regions with the crop advancing much ahead of normal. While yields could suffer in those hot areas, the overall production out of the central and southern Plains is expected to be huge. The crop tour will be this coming week, just in time for the heat.

Corn shot higher on Friday, after it spent much of the week in choppy price action. Big sales to China pushed corn sharply higher, and wheat was certainly a beneficiary. Corn continues to hold gain in value against the wheat markets, and for the first time in history Kansas City wheat prices traded below corn prices.

Wheat also got a boost on Friday on chatter about dry conditions emerging in southern Russia and Kazakhstan. Ironically, northern Russia needs some warm temps, but the southern region has trended on the dry side so far this spring. This is where their major drought started two years ago, so it’s understandable why the market would get spooked about another spell of below normal precip. That region will be watched very closely.

On the flip side, most of the dry European areas received good soaking rains this past week, and are in much better shape than the start of spring. Germany is still trending dry, but the stress on European crops in general is much reduced. That said, Europe still is assessing the harsh winter damage, with more acreage expected to be replanted.

The International Grains Council reduced world wheat production estimates for the 2012 season by 5 MMT to 676 MMT, down 3% from last year’s 695 MMT. The growing season is early, but odds are very high that world stocks will decline this year.

US export sales were strong last week at 744 TMT. This pushes us past USDA’s estimates for total sales with 5 weeks still left in the marketing year, which is about normal. From this point on, sales will focus primarily on the new crop, particularly with the expected early harvest.

Technically, it looks like those longstanding trading range lows supported the market once again. Spring wheat is making a strong effort to break them, but if the winter wheat markets continue to push upward, eventually it will drag Minneapolis with it. The spring wheat/winter wheat spreads have been beat up, and are fast approaching major support levels.

Protein premiums have rallied somewhat, but the market seems to feel we still have adequate supplies of high protein wheat – for now. Once harvest in the southern plains gets rolling, we’ll get a better idea of how much protein we’ll need for blending. Much of the hard red winter wheat in the southern plains is expected to be low-pro and is already earmarked for the feed channel.

It’s important to keep in mind the normal seasonal tendencies for wheat. Winter wheat tends to peak in early May and spring wheat in early June. With the sudden surge on Friday for Chicago and Kansas City, it looks like we could get a rally into early May, offering some decent selling opportunities. If Minneapolis can get off the ropes, look for that early June window for some sales as well.

If the recent price action is any indication of what’s to come for this growing season, then we’re in for a long summer of choppy and volatile days.

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