The wheat market eased a little going into Easter. This has stalled a minor rally, but we may see higher prices return as we go into the end of April, and the expiry of May options and the May futures contract.
The excuse for the lower prices late last week was ongoing concern about the pace of wheat shipments from the US. Export sales seem to be on track to reach USDA export projections, but shipments have been slower than sales, and there are now concerns that some shipments will flow over to the new marketing year, leaving the US with larger than expected physical stocks to start the new marketing year with.
However, the market is also turning its attention to spring and summer weather outlooks. In the US wet conditions are a concern in terms of getting corn planted on time. There are also concerns that spring wheat in the US and Canada won’t be planted on time because of current wet and cold conditions, and that this may impact yield potential. While this is getting some airplay in the market commentaries, the reality is that US farmers are able to plant large areas very quickly, so we are not yet at a critical point.
Still, the speculation is that corn acres will flow to soybeans if optimal planting dates are passed, and there are also concerns that the spring wheat acreage will slip if wet conditions persist for too long.
Meanwhile in Europe wheat stocks are tightening. Wheat exports are down on a year ago after the small French crop, but the pace of exports has still been enough to run down total EU stocks quite sharply. Additional sales are also being made to Turkey after they banned imports from Russia.
Bloomberg are reporting that Europe is likely to end up with its smallest stock levels in around 13 years, with a projected drop of 37 percent year on year to 10.1 mill tonnes by the end of June. Some are becoming bullish for wheat prices in the EU this year because of tighter stocks there combining with a drop in global wheat stocks in 2017/18.
The EU is projecting a lift in production this year, but exports are likely to remain strong, as will internal demand. However, production estimates are falling a little after a dry winter. Crops are in good condition, but moisture reserves are lower than ideal, and rains are need by the end of April to retain potential. France, Belgium, Hungary and Bulgaria are on the watch list, while Spain is already suffering from a shortfall in rainfall.
Seasonal forecasts for the EU see a continuation of dry weather for spring, with some return to normal rainfall in summer, but the dry conditions are expected to move eastward to eastern Europe and Russia as summer unfolds.
These weather issues are only just on the radar now, and will have to develop further to really come into play, but with large net short positions being held by the US funds, weather issues could trigger a short, sharp covering rally at any time.
If the weather issues then transform into actual lower production numbers in Europe, and possibly the Black Sea, then we will be set up for a much needed lift in wheat prices from 2016/17 levels for both old season grain being held, and for new season crops in the ground.
