Pity the millers scrambling to secure supplies of hard red
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.
Indeed, "North American spring wheat remains the epicentre of the action" in grain markets, said Tobin Gorey at Commonwealth Bank of Australia.
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 abates".
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".
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
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 protein levels.
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 authority.
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 this time.
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 higher still.
"It's the demand side that keeps us hampered," he said.
The tow from spring wheat fed into the
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."
"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
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.
By Mike Verdin