Wheat cannot get a leg up at the moment, with CBOT futures making new contract lows on Friday night last week. The May contract fell to 400 USc/bu, before the market lifted to end last week just below the previous contract low at 405 USc/bu.
Currently the various weather issues around the globe are not generating any upside. This is largely because the weather in the US is seen as non-threatening for the bulk of the winter wheat belt, and it is too early to be overly concerned about delays to spring wheat plantings because of the cool and wet conditions further north in the US and into Canada.
There was a frost in Kansas over the weekend, with their season at the stage of canola being in full flower. Frosts might be the one factor to put a few nerves into the US market if any persist into wheat flowering.
At this stage, the psychological barrier of 400 USc/bu seems to be about the only factor stopping prices from continuing to drift lower after last week’s steep falls. The dry conditions in the EU are being watched, but this week’s forecast has rains for many areas apart from France. The UK may also stay a little dry, but in both cases, it is still too early for the accumulating rainfall deficit to show up in crop stress.
If in a couple of weeks’ time the French crop is still enduring dry conditions, it may send some risk premiums into the market. Recovery in French production is being watched closely after last year’s crop pulled overall EU production down.
Further east recent cold weather in the Black Sea region has not been supportive of US futures. In part this is because the larger carryout is expected to leave total supply of wheat available to the market little changed on last year. That should leave total exports from that region close to unchanged even with expected lower Russian production.
A surprise for the market was the planting intentions report from Canada on Friday night. Their wheat acreage was pegged at 23.18 mill acres, very close to that of last year. There is a risk of planting delays to both the US and Canadian spring wheat crops, and this may impact yields and final planted acres, but it is still too early for that call to be made.
While the US winter wheat crop is looking in good shape, issues with the Canadian and US spring wheat crops will be pushed into the background.
Of course, a sharp drop in expected production from Australia this year is also on the horizon, but this won’t really become apparent until the USDA publish their first 2017/18 supply numbers. Even then it probably won’t be taken too seriously because it is so early in our season, and will just contribute to the already anticipated drop in global wheat production anyway.
So, with few issues for the US winter wheat crop, it is hard for US futures to rally significantly. Our best bet might be support at 400 USc/bu, which may then just see some buying activity as funds that are carrying very large short positions, balance out their positions.
The best hope for a rally is in fact likely to be from fund buying if a trigger emerges that allows futures to move into a short term upward price trend.
