Wheat futures seem to be in a pattern of peaking early in the month ahead of the monthly USDA report, falling after the report, and then recovering strongly to start the next month. It is like the USDA reports are reminding us that global stocks are large, while concerns about this year’s production potential begin to take hold again later in the month.
So far for May we have moved from a high that pushed prices on continuous charts to levels seen in July last year. Either side of the USDA report prices fell sharply, with losses of around 50 USc/bu at last week’s low. The market then recovered into the end of last week with a sharp rally last Friday night.
Behind the moves is a market grappling with its first multiple weather scenario for about a decade. The new season is less than ideal in parts of the US, Canada, Europe, Ukraine, Russia, Australia and South America. These combined weather issues are keeping the market on its toes as we enter the business end of the northern hemisphere season.
Recent mid-year price rallies have tended to be driven by a single issue. For example, last year’s US spring wheat drought. This year there is a combination of issues running from being too wet for planting in parts of the US spring cropping areas, severe drought in some winter wheat areas, dry in Canada, wet conditions in parts of Europe, and dry in others, less than average rainfall in Ukraine and parts of Russia, too wet in Siberia, and a dry start to the season in Australia.
None of these issues on their own warrants a sharp rally in wheat prices, but in combination, they ramp up the risk for the 2018 season. In the end they may all fade away, although time is running out for the hardest hit areas of the US Hard Red Winter wheat zone. Elsewhere, too wet means good moisture for later in the season, while too dry right now can be easily reversed with timely rains.
Over the past 10 years we have either seen a seasonal peak in prices in early May, or in late June/July. The fact that prices are having another rally at the start of this week tends to indicate that there is more in it for this year.
One additional factor is that the USDA, FAO and IGC numbers for 2018 are all indicating a pull back in global stocks. While the market brushed this away after the USDA report was released, it is a factor that has not been present for several years.
The world supply and demand numbers will be watched closely for the next couple of months to see if any of the current weather issues are able to eat further into global ending stock estimates. The demand side of the balance sheet will probably hold until trends emerge on consumption, but the production numbers are likely to move around as expectations about crop sizes are formed.
So, the scene seems to be being set for stronger prices in June, with the seasonal peak in late June overtaking the May peak seen to date. By then hard production data will be available, and a number of the current weather issues are likely to have receded, setting the scene for a move to the seasonal low in September.
