It’s easy to assume futures prices in the United States spin around a Chicago axis.
With the Chicago Board of Trade trading wheat, oats, soybean and corn and the Mercantile Exchange doing the same with cattle and hogs, sometimes action at the Minneapolis Grain Exchange and the Kansas City Board of Trade gets overlooked.
However, each of these futures markets specializes in a different kind of wheat: Chicago in soft red winter grown in the southern Midwest; Minneapolis in dark northern spring wheat and Kansas City in hard red winter wheat.
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Last year hard red winter wheat accounted for nearly 40 percent – about 23 million tonnes – of the wheat produced in U.S.
The state of Kansas produces about half of that hard red winter wheat. Add in Oklahoma and Texas, and you’ve got at least 60 percent of production in this class.
That’s why Kansas City wheat futures are setting the pace against Chicago and Minneapolis at the moment, with both the March and May contracts trading at better than $5 a bushel. July wheat in Kansas City is trading at a 20-cent premium to July in Chicago.
January’s arctic cold snap reached all the way south to northern Texas, causing wheat traders to speculate about winterkill in an already stressed crop.
A dry fall meant the crop has germinated poorly in some areas and isn’t as vigorous as usual. “The crop is in poor health, generally,” says Paul Bullock, director of weather and crop surveillance for the Canadian Wheat Board.
But with the crop deep in winter dormancy, Bullock said it’s too early to assess freeze damage, adding it will show when the crop breaks dormancy through March and April. It’s the drought that is causing more immediate concern.
And even that may be exaggerated. “It’s not a disaster,” Jim Quinton, a merchandiser with Scoular Grain in Salina in north-central Kansas, said of speculation about the crop. “Wind erosion is easy to see but difficult to quantify. And freeze damage is a non-issue.”
Quinton said market rumors that the state may lose up to 40 percent of its crop are “hysterical.” He estimated about one in 15 fields has been hurt by wind erosion, which is an overall loss of about six percent.
Quinton, in fact, said the Kansas crop still has the potential to produce average yields if it rains when the crop starts to grow again.
But just as the crop has the potential for average yields, without rain there is the potential for widespread crop failure.
Quinton said with zero moisture the market will get “even more tense.”
Bullock puts it differently. “The markets will go ballistic in July.”
