Pity the millers scrambling to secure supplies of hard red spring wheat.
Prices of the grain - termed the "aristocrat of wheat for
baking bread" by the North Dakota Wheat Commission, with elevated, 13-16% protein
levels - extended their rally in early deals on Wednesday, amid the continued
worries over drought in the US spring wheat belt (including North Dakota).
The Minneapolis July hard red spring wheat contract touched
$6.45 a bushel at one point, the highest for a spot lot since late 2014, before
easing back to $6.41 ½ a bushel, a 2.1% gain on the day, as of 09:40 UK time
(03:40 Chicago time).
Still, even then, the contract was up by approaching 5% for
the week, and nearly 19%, or more than $1 a bushel, since the rally in the
grain began a month ago.
'In for renewed
Indeed, "North American spring wheat remains the epicentre
of the action" in grain markets, said Tobin Gorey at Commonwealth Bank of
And it looks to remain that way for now, given ideas of
further dryness ahead.
Richard Feltes at RJ O'Brien flagged "concern that the US hard
red spring wheat belt is in for renewed dryness after the current rainy pattern
Sure, the likes of North and South Dakota have received,
much-needed, rainfall in recent days.
But the coverage has been incomplete, with many parts
receiving little, or no, precipitation.
And looking ahead into the six-to-10 day outlook, WxRisk.com
cautoned that the Euroepan weather model "shows areas of moderate rain over
some portions of the Midwest but still has large areas of little or no rain
especially over the western Corn Belt and the central upper Plains".
'Balm rather than a
Besides, there are concerns that many crops are too far gone
anyway for rain to benefit them much.
"I believe a fair amount of the crop in western regions [of
the spring wheat belt] is too far advanced to add many bushels," said broker
Benson Quinn Commodities.
Some has already been cut for hay, or sprayed off and
insurance claimed, and some of the remaining crop headed, leaving little
prospect of improvement from rain.
"Rainfall, recent and expected soon, is only enough to be a
balm rather than a cure," CBA's Tobin Gorey said.
What is also intriguing is the impact of the spring wheat
price rises on values of winter wheat,
with the premium between Minneapolis contracts and Chicago soft red winter
wheat peers (low protein) and Kansas City hard red winter wheat (medium
protein) closely watched.
In fact, with spring wheat the only alternative for millers
in some functions, the contracts have not moved in lockstep at all.
Chicago wheat for July, for instance, up 1.2% at $4.50 ½ a
bushel in early deals, has gained 6% over the past month.
Still, there is some evidence of investors pricing more of a
premium into protein, with Kansas City hard red winter wheat for July adding
1.9% to $4.65 ½ a bushel so far on Wednesday, taking its gains for the last
month above 8%.
In fact, the Kansas City-Chicago spread has soared,
approaching a tripling just this week from the level of $0.05 ¾ a bushel at
which it closed on Friday.
Still, this brings in a further twist, with the hard red
winter wheat harvest itself apparently coming in with decent yields by poor
RJ O'Brien's Richard Feltes flagged reports from the early US
hard red winter wheat harvest of "dismal" protein levels of "10% or less,
although the trade expects readings to improve as custom crew move into western
Kansas", Kansas being the top wheat-growing state.
And wheat needs a minimum of 10.5% protein to be deliverable
against Kansas City futures, let alone to offer any chance of posing as much of
an alternative for spring wheat.
Millers last season "blended 11.5% protein hard red winter with
14% protein hard red spring wheat to meet milling specs", Mr Feltes said.
Another ripple stemming from the spring wheat turmoil is the
impact on US export prices, even of poorer quality wheat, as futures in winter
crop contracts are dragged higher.
This was brought into focus by the results last night of the
latest tender by Egypt, the world's top wheat buyer, through its Gasc grain
Gasc bought 300,000 tonnes of wheat, taking to 840,000
tonnes the amount of wheat it has already lined up for delivery in 2017-18
(starting in July), an early-season period in which the country is more
typically relying on supplies from the domestic harvest, which fell a bit short
However, all of the wheat has been bought from Black Sea
origins (Romania, Russia and Ukraine) with CHS Hedging flagging that "US values
are no longer competitive and no US wheat was even offered" to Gasc.
Mike Zuzolo at Global Commodity Analytics saw the Egyptian
tender results as a major reason as to why US wheat prices are not moving
"It's the demand side that keeps us hampered," he said.
East vs west
The tow from spring wheat fed into the corn market too, which added 0.9% to $3.84 ½ a bushel for July
delivery, ignoring the temptation of returning to the comfort zone of the trading
corridor of $3.60-3.80 a bushel or so which it trod for three months, until
Furthermore, there are some worries over the impact of
dryness on prospects for the US corn harvest itself, in the northern Plains
states, but also further south in the western Corn Belt.
"Forecasts tend to look ok for the eastern Corn Belt as
precipitation is expected and temperatures are expected to be near average for
this point in the year," said Benson Quinn Commodities.
The eastern Corn Belt should "move into pollination in
fairly decent shape" under current weather forecasts, but the "western areas
would not be as lucky.
Besides, "there is getting to be more and more chatter about
poor population counts due to spring conditions."
"It sounds like it is worse than normal."
'Iowa is getting
It is soybeans
which have missed out on the grains rally, moving in something of a different
"Soybeans, with plenty of supply now and later, had no
invitation to the grains party," said Mr Gorey.
Still, the Chicago July contract added 0.5% to $9.37 ½ a bushel,
with the oilseed too vulnerable to western Corn Belt dryness (although more so
later in the summer, during its key pod-setting phase).
Returning to the issue of US dryness, CHS Hedging said that "subsoil
moisture is becoming a big issue.
"With all of the rains early in the season there are very
few areas with surplus moisture right now. A big chunk of Iowa is getting
pretty dry," Iowa being the top corn and soy growing state.
It was a help that soymeal,
which has been a drag of late thanks to demand worries, added 0.6% to $303.40 a
short ton for July while, elsewhere in the oilseeds complex, Kuala Lumpur palm oil cheered up too, bouncing 0.6%
to 2,447 ringgit a tonne from the 10-month closing low hit in the last session.
'Fireworks might be
Even cotton, one
US crop over which there are few condition worries, gained – and at a sensitive
time, with the July and December contracts closing the last session at their
lowest in four months.
Furthermore, the finishes were made only just above 200-day
moving averages – which are beginning to some investors to look like the last
line of defence against a sharp fall.
"Cotton futures are ploughing through multiple sell trigger
levels very quickly – the consequence of having gone nowhere new for months,"
said Mr Gorey.
"The forecast fundamentals have been in place for some time
for lower prices.
"Fireworks might still be ahead."
Still, for now, the July lot rebounded 0.4% to 74.80 cents a
pound, and the December lot 0.2% to 71.98 cents a pound.