Market Perspective

The wheat markets have been in a hard correction ever since the May USDA Crop Production Report came out a month ago. Before that the market experienced a strong rally supported by the deteriorating crop conditions of the Hard Red Winter Wheat crop in the Southern Plains and the unrest in the Black Sea between the Ukraine and Russia. As is so often the case, it was not the crop report itself that caused the market to reverse but more the idea of "buy the rumor, sell the fact". The report made traders take a step back and look at the overall picture. Yes, the wheat crop in the Southern Plains was not in good shape and yes, there was some uncertainty about the situation in Ukraine. But in the rest of the world the wheat crop, in general, was looking pretty good and the U.S. wheat prices were significantly higher than the world values, particularly European and Black Sea wheat values.

Since then U.S. prices have fallen, but so have the offers out of Europe and the Black Sea. The poor crop in the Southern Plains is now "in the market", and the unrest in the Ukraine looks to be stable for the moment with no adverse effects to the movement of grain out of the region. In addition, the corn crop in the U.S. has been planted. Early concerns about planting delays have given way to ideas that the corn crop is off to an excellent start with very good moisture and growing conditions throughout the cornbelt. Speculative funds have turned bearish wheat once again, and have been liquidating their long position in corn. As of this writing Chicago Wheat Futures have closed lower for 18 out of the last 19 trading sessions. People are asking "how low can we go"?

From a technical standpoint the markets are very oversold and due for a bounce but so far have not found a reason for that bounce. From a seasonal standpoint, harvest is picking up in the Southern Plains, through Texas and into Oklahoma. Early yields in SW Oklahoma are five to 15 bu/acre. That was expected and not really news to the market. We will not reach the halfway point for winter wheat harvest until the end of June or the beginning of July. Seasonally that is when the grain markets tend to rally. It is also the time that corn will enter its critical pollination stage and the markets tend to be pretty volatile then.

Locally, we have been very dry especially over the last three months. The crop has held up this well only because of the moderate temperatures, but the lack of rainfall will more than likely show up in the yields. The USDA estimated in the last crop report that white wheat production in the U.S. will fall from 268 million bu last year to 208 million bu for this year. That coupled with the strong possibility of El Nino affecting Australia's wheat crop could lead to a good rally this fall. Already we are seeing basis levels for white wheat start to firm as well as the club premium. Back in January people were talking about the bottom falling out of the wheat market. The same people are talking about it now. When that happens we are usually close to a bottom. We might not see that bottom until July but I like the chances for white wheat come this fall.