Spring wheat futures jumped 5%, as fears for a return of dry
weather to the main US growing area compounded worries prompted by an "abysmal"
official rating of the crop, and raised the spectre of the drought year of 2012.
Minneapolis spring wheat futures for July touched $6.33 ¼ a
bushel at one point, the highest for a spot contract since the first week of 2015,
before easing back to close at $6.28 a bushel in late deals, a gain of 4.6%
on the day.
The jump reflected US Department of Agriculture data
overnight which rated at 45% the proportion of the US spring wheat crop in "good"
or "excellent" condition – a 10-point decline, far more than the 8 point drop
that investors had expected.
"Abysmal spring wheat crop conditions in yesterday's crop
progress report are supporting the market," CHS Hedging said.
The rise in Minneapolis spring wheat futures is also being spurred by a near-2% jump in the Canadian dollar this week, after economic data prompted the country's central bank to signal the potential for an interest rate rise.
An appreciating Canadian dollar cuts the competitiveness of the country's, substantial, wheat exports, so boosting the appeal of US alternatives.
The slump in the US spring wheat condition rating to the lowest June figure on data going
back to 1995, and the lowest in any year since 2006, reflected spreading drought
in northern Plains.
Spring wheat ratings in top growing states and (change on week)
Minnesota: 93%, (-2 points)
Idaho: 73%, (-3 points)
Washington: 75%, (-8 points)
North Dakota: 43%, (-9 points)
Montana: 23%, (-25 points)
South Dakota: 13%, (-12 points)
US average: 45%, (-10 points)
Data show proportion of crop rated good or excellent, week ending June 11. Sources: USDA, Agrimoney
In South Dakota, where the good or excellent rating slumped
to an all-time low of 13%, the USDA said that "highs in excess of 90 degrees Fahrenheit
and strong winds continued to exacerbate drought conditions in many areas".
The Montana reading of 23% rated good or excellent was the
lowest reading since 1997, and North Dakota's figure of 43% the weakest since 1988,
according to North Dakota-based Halo Commodity Company.
The data were viewed as showing a heightened urgency for
rains to refresh drought-hit crops.
"It confirms how critical it is for this next 10 days
rainfall to materialise," said Mike Zuzolo at Global Commodity Analytics, raising
the spectre of 2012, when US crop production was devastated by dryness.
"Otherwise, we are indeed heading toward similar crop
conditions in row crops as we are seeing in the spring wheat, and we are
starting to move into 2012 territory."
However, while the northern Plains have received rainfall in
recent days, some observers saw models as indicating a return to dry
Darrell Holaday at broker Country Futures said that "it
should be noted there were some very good rains in North Dakota and South Dakota
overnight and this morning,
"But other than some additional rainfall tonight, the
moisture disappears for at least 10 days, based on latest model runs."
Benson Quinn Commodities said that "more rain will be needed
but forecast turns dry for the next 10 days".
David Tolleris at WxRisk.com offered more hope for farmers,
saying that both European and GFS weather models "show pretty good rains over southern
half of Minnesota into North Dakota and the northern portions of South Dakota"
in the one-to-five day horizon.
However, on the six-to-day day outlook, the "European model
has flip flopped and it now agrees with the GFS, and both models show large
areas of no significant rain over the Midwest and the upper Plains".
Still, even the current rains are arriving too late to save
some crops, with social media over the weekend showing pictures of some South
Dakota farmers cutting spring wheat for hay, echoing what has already been
undertaken in winter wheat.
"The question now becomes what the recent rains have done
for the Dakotas, and whether this will change any producer attitudes toward
abandoning their wheat, harvesting their wheat or putting it up for hay," Mr
"Anecdotal reports of spring wheat heading out this week as
far north as Minot seemed to call into question how much benefit additional
rainfall could provide."