Market Perspective

 

Last updated 4/23/2014 at 4:45pm



The weather market has begun in earnest. Over the last month the futures have had quite a few twenty cent trading sessions. Some has been due to the continuing confrontation between Russia and the Ukraine, but most of it has been due to weather forecasts and the USDA Crop Progress Reports which have started to come out every Monday afternoon.

The latest Crop Progress Report showed the overall U.S. winter wheat crop rated at 34% good to excellent and 33% poor to very poor, about the same as last week and about the same as a year ago. Overall, the U.S. wheat crop is not in very good shape, which is why the weather forecasts have become very important to market observers, particularly the weather in the Southern Plains. A significant part of the plains is classified as experiencing severe drought. Crop conditions in Kansas, Oklahoma and Texas continue to decline. Kansas is rated 24% good to excellent and 32% poor to very poor. The Oklahoma crop is rated 11% good to excellent and 61% poor to very poor. The Texas crop is rated 12% good to excellent and 65% poor to very poor. In Texas, 34% of the crop is headed out and in Oklahoma 10% of the crop is headed out. The first wheat harvest in the U.S. usually occurs at the end of April in the Corpus Christi area. The clock is ticking for much needed beneficial rains.

Even with the concern about crop conditions and the situation in the Black Sea, the rally in the wheat market has stalled. Seasonally this is not a strong time for wheat prices as we approach the beginning of wheat harvest in the U.S. Traders know this and have once again taken a net short position in Chicago of about 100 million bu. In contrast they are now long over 800 million bu in corn and 700 million bu in soybeans.

On the charts, wheat futures look to be in a classic reverse head and shoulders formation. A break below $6.63 in the Chicago in July futures contract and we could move another .20 lower. A move above $7.25 in Chicago July and we could see a rally to $7.75. The biggest factor in determining the direction will be the weather over the next month.

Over the last three weeks, selling from the country has been pretty quiet. We bought about 10% of the new crop when prices rallied last month but once prices backed down off their highs, the selling dried up. Now most producers are waiting for more rain to get a better idea of what their yields are going to be.

Locally, it was nice to finally see it rain. The crop out in the field definitely needed it and more is needed. Like last year, there is quite a bit of variation from field to field and even within the same field. The winter took a toll on the wheat crop. Quite a bit of reseeding took place to the west and south of Odessa. With the rain, fertilizer applications will restart. The rain will also help get the summer fallow ready for this fall, but more rain is definitely needed even for next year's crop. The weather market has begun.

 

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