Kansas hard red winter wheat futures jumped higher by about US40 cents a bushel, or 10 percent, in the last week of January on continuing dry weather in the southern U.S. Plains and a weaker U.S. dollar.
The rally did not extend to the Minneapolis spring wheat market, but the action in the winter wheat market shows the trade is a little nervous.
It is likely premature because the condition of winter wheat in January has little bearing on final yields.
There is lots of weather between now and when the U.S. winter wheat crop is harvested. Indeed, a large part of Nebraska and Kansas received welcome snow Feb. 3-5. And as always, spring rain is the key determining factor on yield.
Nevertheless, even with the recent snow, the overall moisture deficit is large and producers and wheat buyers must be wondering when this drought that grips most of the southern Plains will end.
In a monthly report issued Jan. 29, the winter wheat crop in Kansas, the biggest wheat producing state, was rated 44 percent poor to very poor, 42 percent fair and only 15 percent good to excellent. That is a poor rating for this time of year and well down from the end of December when 38 percent was good to excellent.
The condition of the crop in the second largest winter wheat producing state, Oklahoma, was even worse.
The dry weather is not a surprise. This is a La Nina winter and they tend to deliver dry weather to the southern Plains.
La Ninas are a reoccurring phenomenon caused when water in the eastern Pacific is cooler than usual.
The U.S. Climate Prediction Center expects the La Nina to persist into the northern hemisphere spring and then fade into neutral territory.
You might remember that conditions in the Pacific were headed toward a La Nina last winter but never reached the full threshold.
A paper by researchers at the University of Texas at Austin published last fall in the journal Geophysical Research found that dry weather in the U.S. in the second year of La Nina conditions tends to push farther north and east than in the first year.
There is no certainty that will occur this year, but it is one more thing to consider. The U.S. central and northern Plains suffered a spring and early summer drought last year and the dryness extended up into the southern Canadian Prairies.
There is little subsurface moisture left in that region to sustain crop growth like it did last year.
We could see some real action in the wheat market if it is still dry as spring begins. Millers would be expected to top up their wheat supply as insurance against a potentially small North American crop.
Finally, the weaker American dollar, at its weakest point since December 2014 against a basket of other major world currencies, could make U.S. wheat more competitive on global markets, leading to stronger exports. That too would lift U.S. wheat futures.
However, the rally could again be short lived if, as expected, the Black Sea region produces another big crop.
If there is a spring rally, it would be wise to seriously consider locking in a price on a percentage of your expected production.