Wheat futures saw a good rally last week with the Chicago December contract gaining 6.4 percent.
The rise in Kansas hard red winter and Minneapolis hard red spring were less aggressive with Kansas up 3.8 percent and Minneapolis up 2.8 percent.
The variation in the gains gave Chicago soft wheat a rare premium over Kansas hard red winter wheat. Kansas and Minneapolis, with their higher protein levels, usually trade higher than Chicago.
Big investment funds had previously been together in the expectation of falling prices, accumulating a heavy net short position.
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But that began to be viewed as a big risk as weather posed a challenge to wheat crops in the Black Sea region and Australia.
So the funds began to cover their short positions last week, at least in the Chicago contract, and that accounted for the sharp rally.
However, continued gains will have a steep hurdle in the form of ample global wheat supply, stiff competition and improving conditions in U.S. winter wheat regions.
Harvests around the world have been good this year. The worry is about the harvests yet to come, and Australian farmers are the next to start their combines.
Australia’s crops have faced extreme weather in the last few months.
October was the hottest month ever in records going back to 1910. The rainfall average for the country was down 53 percent from normal with the extreme southeast and southwest of the country among the hardest hit. Both regions are important for crop production.
Then heavy rain fell in much of southeastern Australia this weekend. Most of the wheat growing regions in the eastern part of the country got more than 25 millimetres over the weekend. More rain was expected midweek, likely damaging quality.
Australia’s wheat was not expected to be a disaster, even with the scorching October. The official forecast is 25.3 million tonnes, up from 23.7 million last year, but that was made before October’s heat.
The U.S. Department of Agriculture attaché in Australia recently forecast a 24 million tonne crop and exports of 17 million tonnes, down from the official USDA forecast of 27 million tonnes of production and 18.5 million tonnes of exports.
The Australia & New Zealand Bank has forecast a 23 million tonne crop.
Looking ahead to crops that will be harvested next year, Argentina’s Buenos Aires Grains Exchange sees a 9.5 million tonne wheat crop, down from 11.75 million this year.
As well, Ukraine forecasters see a crop near 19 million tonnes, down 20 percent.
However, to support prices bigger reductions will be needed to offset huge carry-in stocks of 228.5 million tonnes, up 36.9 million from last year.
darce.mcmillan@producer.com
