Spring wheat futures rally on heat and drought concerns

New crop hard red spring wheat futures had a 29 percent premium over hard red winter wheat at the close of last week as dry weather stressed plants in the northern part of the continent even as southern farmers are cheered by their combine yield monitors.

Crops are mixed on the Canadian Prairies with some regions benefiting from rain in the first half of June but other areas are dry.

With temperature highs expected to exceed 30 C in the last week of June and the first week of July and no major rain in the forecast, worries about crop conditions north of the border will likely soon become more universal.

But the situation in the United States Northern Plains is already more uniformly bad, with well-below normal rainfall in much of North and South Dakota, Minnesota and northern Iowa. Large parts of Montana are also dry. Many of these areas also suffered from bouts of extreme heat and wind.

This is the region where most U.S. hard red spring wheat is grown.

As of June 20 only 27 percent of the crop was rated good to excellent by the U.S. Department of Agriculture compared to the 10-year average of 71 percent.

On the other end of the scale, 37 percent was rated poor to very poor, compared to the 10-year average of six percent. Things were particularly bad in North Dakota where 50 percent of spring wheat was poor to very poor.

Overall, the U.S. spring wheat crop is in worse shape than in 2017, the last time drought had a hold there. In that year at this point 27 percent was in poor to very poor shape.

In 2017, the Minneapolis hard spring wheat futures price topped out in July at a little more than US$8 per bushel, similar to its recent price.

Can the price climb higher? In the U.S. drought of 2012, spring wheat futures topped US$10 per bu.

The price will likely rise if July weather on the Canadian Prairies continues hot and dry. But there are also factors that could hold back prices.

The U.S. winter wheat harvest was 27 percent complete as of June 20 and production so far has been better than expected.

The USDA recognized the improved prospects in the south in its June supply and demand report, raising the overall U.S. average wheat yield forecast to 50.7 bu. per acre, up from 50 bu. the month before.

So the usual harvest pressure is providing downward pressure, but so far that is confined to the hard and soft red winter wheat contracts, not the spring wheat contract.

I should also note that the soft white winter wheat crop in the U.S. Pacific Northwest is in rough shape because of dry weather and heat.

It is easier for wheat prices to rise if they have support from other parts of the grain complex, especially corn, but that market has been pressured down lately.

While the northern Plains have been dry, a large part of the Midwest enjoyed substantial rain in recent weeks.

While Iowa, which traditionally accounts for about 17 percent of the U.S. corn crop, is split into a dry north and wet south, Illinois, which has 15 percent of the crop, has good moisture as does Indiana, which accounts for seven percent of the corn. Nebraska, which has 12 percent of the crop, also has good conditions.

More rain was forecast this week across the Midwest, keeping downward pressure on corn and soybean futures.

Other factors in the market include the Statistics Canada acreage report June 29 and the USDA acreage report June 30. This column was written before the reports were released.

Pre-report expectations were that Canadian canola area would be about a million acres higher than in the spring seeding intentions report. The trade expected the USDA report to show larger corn and soybean acreage than in the March prospective planting report and wheat acres would be down.

Wheat markets last week took in the news that the influential analyst SovEcon raised its forecast for Russia to 84.6 million tonnes, up 2.2 million from its last forecast. Last year’s Russian wheat harvest was 85.9 million tonnes.

In Ukraine, rains have been good. Private analysts on average forecast 27.6 million tonnes of wheat, up from last year’s 24.9 million. SovEcon thinks Ukraine will post a record crop of 29.1 million tonnes.

In Europe, grains are in better shape than they were last year. The European Union’s crop monitoring unit last week raised its soft wheat average yield forecast to 89 bu. per acre, up from 87.8 in May and 5.6 percent more than the five-year average.

It raised its durum yield outlook to 53 bu. per acre, up 2.2 percent from the five-year average.