Small crop could create wheat price rally: analyst

CHICAGO, Ill. — Darin Newsom couldn’t believe what he was about to say.

For the first time in many years, DTN’s senior market analyst was going to tell a room full of farmers attending the 2017 DTN Ag Summit that he was modestly bullish on wheat.

“It’s insane to say this, but I think wheat could actually turn a corner here this year,” said Newsom.

The market fundamentals suggest there is no reason to rally.

The U.S. Department of Agriculture estimated 2016-17 U.S. wheat ending stocks at 1.2 billion bushels, the highest in 30 years.

The stocks-to-use ratio is an abysmal 53 percent, which is also the highest in 30 years.

Demand prospects are not good because U.S. wheat is facing stiff competition from cheaper wheat out of Russia, Ukraine and the European Union.

However, something tells the analyst there is a bullish outlook for the crop.

“Wheat is actually starting to look better because we are reducing our acres because we are reducing our production,” he said.

U.S. farmers in the fall of 2016 planted 29.4 million acres of winter wheat for the 2017 harvest, down from 33.1 million acres the previous year. It was the second smallest crop in over a century.

Newsom expects grower reduced acres even further this autumn for the 2018 crop.

If true, he thinks the Kansas City July futures contract could rally as high as $4.40 per bushel over winter, up from around $4 today. He believes that would be a good opportunity to put sales on the books.

Minneapolis spring wheat futures are selling at a $2 per bu. premium to winter wheat, which is an unusually large spread. Spring wheat has the premium because of the drought in the U.S. northern plains and southern Canadian Prairies.

“What we saw last year is how vulnerable the spring wheat market is to a weather event still, probably one of the last markets that is that vulnerable,” he said.

The stronger Minneapolis price will probably lead to increased spring wheat plantings.

“If we see more acres go in this spring, that’s going to keep a lid on this thing,” said Newsom.

He believes the Minneapolis futures contract could fall to about $5.70 to $5.90 per bu. by September 2018 from about $6.30 today.

About the author

Comments

Markets at a glance

Copyright © 2018. All market data is provided by Barchart Market Data Solutions. Information is provided 'as is' and solely for informational purposes, not for trading purposes or advice. To see all exchange delays and terms of use, please see disclaimer.

explore

Stories from our other publications