Wheat took over the driver’s seat from the oilseed complex in crop markets last week.
Fundamental factors such as freezing weather in the United States supported wheat, while technical factors such as the narrowing spread between contract months showed improving demand.
However, the rally did not carry through to the close Nov. 17, which raised questions about whether the price strength has staying power.
The nearby Chicago soft wheat contract rose 8.9 percent last week, which was the biggest one-week gain since July 2012.
Kansas City December hard red winter wheat gained 6.4 percent, and Minneapolis December spring wheat gained 7.9 percent.
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The main factor lifting wheat was the cold weather that extended into the U.S., which presented a threat to the newly seeded winter wheat crop.
The market was also noting the renewed frictions between Ukraine and Russia over alleged Russian incursions into eastern Ukraine. The violence in Ukraine has not hurt production or exports, but there is the potential.
Other fuel also helped keep wheat at a low boil last week:
- Australia’s crop is suffering under dry conditions.
- Russian and Ukraine wheat is under stress as it goes into winter dormancy.
- There is an ample supply of wheat this year, but much of it is of poor quality and buyers are paying more to get the limited supply of quality wheat.
The spread between contract months is also narrowing, which indicates stronger commercial demand.
The carry in Chicago wheat be-tween the December and March contracts as of Nov. 17 was only two cents. It was 24 cents at the beginning of November.
The U.S. Department of Agriculture reported that export sales of U.S. wheat in the latest week were 417,700 tonnes, topping trade expectations for 250,000 to 400,000 tonnes.
But as they say, like fire, grain rallies must be constantly fed to be sustained, and there might not be enough nourishing news to keep this flame alight.
Week-to-week weather has less impact on yield potential as winter takes hold and winter crops move into dormancy. Production potential resumes as a topic of market talk in late February and early March as weather starts to warm and dormancy ends.
Of course, there is speculation about how many acres were seeded to winter wheat in the United States. The U.S. Department of Agriculture releases its survey of winter wheat seeding in January.
An Informa forecast last week said farmers would seed 42.2 million acres of winter wheat, about the same as last year.
Demand can be monitored weekly over winter. If North American prices rally too much, exports will fall off as buyers turn to cheaper sources from the Black Sea, Europe or Australia.
The competitiveness of Russian wheat is assisted by the falling ruble, which is under pressure from the sanctions that Western countries have imposed over Russia’s aggression in Ukraine.
Another factor of particular interest to durum sellers is the impending winter closure of the St. Lawrence Seaway.
The shine could come off the strong prices for quality durum as the window closes for the European and North Africa markets.
The bottom line in all this is that premiums will likely continue for quality wheat, but lower grades face strong competition from ample world supply, which limits the likelihood of a sustained rally this winter.
If Russian or American winter wheat crops come out of dormancy in the late winter in poor condition and there is little spring rain, then you can clear the decks for a rally.
