Spring wheat enjoying ‘unusual' price rally

By MARK CONLON, Editor
Sunday, June 10, 2007 2:28 PM CDT

This time of year, when the winter wheat harvest is just getting under way and spring wheat is just getting started growing, is when wheat prices typically drop a little. That's not the case this year.

“The market is seeing an unusual rally as we head into the heart of the winter wheat harvest,” said Jim Peterson, marketing director for the North Dakota Wheat Commission. “At the end of May the markets have pressed toward the upside.”

Peterson noted that futures markets in Chicago, Kansas City, and Minneapolis have all challenged or broke through their previous contract highs, most of which were set in April after a frost put a scare into the market as did planting delays in the Corn Belt region.

“Most of the markets sold off about 60 cents into the middle of May,” Peterson said. “Now, we've resumed the uptrend again.”

Chicago July futures were trading at $5.20 to $5.30. The previous high was $5.30. Kansas City July futures stood at $5.10 to $5.20 compared to the previous high of $5.38, and Minneapolis July futures were $5.35 to $5.45 compared to the previous high of $5.45.

“In some ways, we've had a lot of people scratching their heads, wondering which way will it go,” Peterson said.

There are a lot of fundamental factors driving the market at the present time, according to Peterson. “We're showing a lot of positives fundamentally and technically,” he said, adding that if the futures break through the previous highs, that will likely attract speculative fund buyers back into the market.

One fundamental factor is that world wheat stocks were projected to be at 25-year lows in the May stocks/use report from USDA.

An issue that may tighten stocks further is that production in the Ukraine may fall off considerably due to severe drought conditions.

“Up to one million acres may have already been lost,” Peterson said. “Analysts are lowering their production estimates. In early May USDA put estimated production there at 625 million bushels, but some private analysts are now forecasting production there below 400 million bushels.”

The drought in Russia is expanding as well and projected production numbers are below what USDA had estimated earlier for this region.

“The Black Sea region accounts for about 20 percent of world wheat trade,” Peterson pointed out. “And typically they're the cheapest priced in the world and very competitive. If harvest results confirm these private estimates they won't be able to export as much and world wheat prices will likely go higher. We're starting to see some of that already.”

Another fundamental issue contributing to this anomaly in the market is adverse rain in the hard red winter wheat regions hindering harvest in south central U.S., while beneficial rains fall in the hard red spring wheat region.

“The rains we've been getting here, that are beneficial for spring wheat, they're also getting in the winter wheat area,” Peterson said. “The market is concerned with yield and quality loss and as a result we're seeing more strength in Chicago due to the world situation, and Kansas City where hard red winter is traded.

“There's a dichotomy in the market in that Minneapolis is following in sympathy with Chicago and Kansas City as they rally,” he continued. “Typically we'd see double digit declines with this rain. Some analysts feel Chicago will move to a premium over Minneapolis, and that's opposite of what normally takes place.”

Spring wheat is off to a good start with 85 percent rated good to excellent at this stage, and 95-98 percent of the crop planted.

Another supportive factor for the U.S. spring wheat market is that it's also wet in Canada and acres there may be down further than was estimated in the planting intentions report.

Producers may opt to plant other small grains like barley instead.

“Volatility is still high in the market,” Peterson said. “If the futures aren't able to break through the previous highs, the market could break pretty hard.

“A lot of producers will view this current situation as a good pricing opportunity,” he added. “Compared to this time last year, prices are very attractive.”

Local cash prices ranged from $4.75 to $5.10 in some eastern locations.

“These are the highest cash prices for this marketing year,” he said. “But there's not a lot of old crop to move.

“If you're a spring wheat producer, this is the best of both worlds with good crop conditions and prices rallying.”

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