Market perspective

Wheat markets have continued their recent rally which started at the end of September. Wheat futures have rallied more than $.70 from their lows. Corn futures have risen $.50 off their lows. The cash markets have also moved higher with Soft White back to their August prices. The rally in the futures has been the main driver of the rise in the cash markets and one of the main factors has been the weakness in the U.S. dollar.

As mentioned in the last Market Perspective article, the weakness in the U.S. dollar and the pullback in the equities markets caused investment funds to reallocate some of their money back into commodities, including the grains. But within the last ten days the U.S. dollar has recovered and moved to new highs. The stock market has also rebounded, nearing its previous high. Crude oil and gold have been under pressure once again as funds shift back to the dollar and stocks.

Grains have held up reasonably well so far but the futures have once again become technically overbought and due for pullback. Fundamentally we are still looking at a record U.S. corn crop of well over 14 billion bu and a two billion bu carryover next year. The soybean crop will also be a record and some traders are looking for USDA to boost production for both in next Monday’s USDA Crop Production Report.

Wheat would appear to have better fundamentals, especially good quality wheat. The world price for wheat has firmed over the last month. There are concerns about the condition of the winter wheat crop in Russia and the Ukraine because of dry seeding conditions and early cold weather. Some traders are projecting the Russian wheat crop to be down over 15% next year. Australia has also lowered its wheat production estimates to between 22 to 23 million metric tons down from last month’s USDA’s estimate of 25 million metric tons. But if the futures markets turn lower, wheat will have a hard time moving higher on its own.

Locally, the recent rains were definitely needed and helped stabilize the crop in the field. The wheat that made it out of the ground is looking much better. But there are many bare patches out there where the wheat did not come up. In the latest USDA Crop Progress Report the winter wheat crop conditions in Washington were rated the worst in the nation at only 26% good to excellent.

Currently we have bought about 60% of this year’s wheat crop. The Club Wheat and Dark Northern Spring markets remain tight and the Soft White market is also tightening especially for lower protein wheat. How the crop in the field comes through this winter could have a big impact on prices for this year’s wheat crop come this spring. However before we get there, holders of cash wheat may have to ride through a correction in the futures.