Farmers with a little courage and some spare acres could benefit from a gamble on an unpopular market choice.
“Red spring wheat,” said John Duvenaud, editor of the Wild Oats markets newsletter, when asked which crop farmers should considering throwing any remaining free acres into.
That was a choice echoed by Errol Anderson of the Pro Market Wire report.
“I kind of view wheat as a sleeper crop,” said Anderson.
Mike Krueger of the Money Farm in Fargo, North Dakota, agreed.
“I think wheat has the potential to be a sleeper,” he said.
The three analysts shared the view that wheat’s likely upside is based on the long, ugly downside that farmers have been living through.
U.S. farmers have been planning to drop millions of acres of wheat this spring to concentrate on better-looking crop choices, while Canadian farmers have been feeling blue about both wheat prices and the quality devastation wrought by fusarium after last year’s wet weather.
Huge wheat crops produced around the world had created big stockpiles that have steadily weakened wheat prices.
Chicago winter wheat futures have trended down from $6 per bushel in July 2015 to about $4.20 now. In 2012 they peaked above $9 per bu. and have ground lower as the effects of the drought-induced shortage have worn off.
Minneapolis spring wheat futures peaked at more than $10 per bu. in 2012 and are worth about $1 per bu. more than winter wheat, at $5.40. That’s about even with last year’s price at this time and 10 percent down from $6 prices the year before that.
Speculative funds have been heavily short on wheat, assuming the downside is a lot stronger than the upside for the crop, which grows in every major farming region.
However, that’s why the three analysts think wheat has the best chance at a rally in coming months. Everybody seems to expect it to get weaker.
“The market is low enough that it can rally in a surprise rally that would surprise traders with its strength,” said Anderson.
“I think in the next year we’ll see some sort of a wheat rally.”
Krueger said the world’s crop markets have become complacent with consecutive big wheat crops.
“We’re just one weather scare away from a rally,” said Krueger.
“It’s been pooh-poohed so much. The funds, if they get attracted to the futures, all it will take is a weather problem in a major exporting nation and the funds will jump into it.”
Reverses out of bear markets can become dramatic as short-covering combines with long position takers moving in and anxious commercial buyers scrambling to get covered.
Krueger said the oversupply situation might already be alleviating with the recent snowstorm across the southern Plains and related rain across the corn belt challenging the health of winter and spring crops. France is dry and Australia appears to be dry, too.
Duvenaud said the markets are so familiar with easy access to big wheat stocks that they might take a while to notice if they begin becoming less onerous, but the situation today is not as dire as it has been.
That might make wheat a good gamble if farmers still have any flexibility with their acreage plans.
“The stocks are actually reasonably tight and prices are not that terrible,” said Duvenaud.