Wheat outlook closely watched for right reasons

Wheat futures have raced higher once again over the past month with the May 2022 Chicago, and Minneapolis contracts all gaining nearly 70 cents. May 2022 Kansas wheat futures have gained $1 a bushel in that same time frame.

Buyers have emerged as global weather patterns for major wheat growing areas around the world show signs of struggle for fragile wheat sitting in winter dormancy. Funds have been lifting some short positions and new buyers are beginning to emerge.

The threat of smaller crops in the United States

While the February U.S. Department of Agriculture report was slightly bearish versus pre-report expectations, the reality remains that U.S. ending stocks are still snug compared to year ago levels. U.S. all-wheat ending stocks are now pegged at 648 million bushels, up from 628 million bushels on last month’s report. While higher than trade was expecting, this will be the lowest all-wheat ending stocks in the last eight years. Ending stocks were at 845 million bushels in the 2020-2021 crop year, and at 1.028 million bushels in the 2019-2020 crop year.

Traders seem to have one eye on USDA data, and the next eye on the weather conditions in the Plains as the winter wheat crop rests in dormancy. The Plains are depleted of soil moisture with recent snows not doing much to quench thirsty soil conditions. According to the USDA’s National Agricultural Statistics Service, the Kansas winter wheat crop is rated at 30% good to excellent, 39% fair and 31% very poor to poor. Other states’ wheat crops fared worse: good-to-excellent ratings were pegged at 16% in Oklahoma, and 20% in Colorado. The next crop progress and condition report was scheduled for Feb. 22.

Global wheat demand is growing; the global wheat crop is not

In early February, Stats Canada released its Dec. 31 wheat crop stocks estimate. For the Canadian stocks report, total wheat stocks came in at 15.564 million tonnes as compared with trade expectations for stocks near 17.3 million tonnes. This is 37% below the five-year average of 24.9 mmt, and is the smallest Canadian all-wheat stocks estimated since December 2002.

On the February USDA report, global wheat ending stocks are now 278.2 mmt, down from 279.95 mmt last month. Smaller crops in both Canada and Argentina were the culprits for the lower ending stock number. In addition, the USDA raised world wheat demand by 2.5 mmt.

Keep your eye on world weather and geo-politics

Dry weather in the U.S. southern Plains, as well as expanding drought in northern Africa, is on traders’ minds. Now that the report is “old news” these weather factors will become more prevalent. As of this writing, there is nothing new to report on the Russia and Ukraine situation (though it is far from over at this point). Also, the world wonders what China might be up to once the Olympics are complete.

Short term resistance on the May 2022 Chicago wheat contract is at $8.25 a bushel with next resistance at $8.50. May 2022 Kansas wheat futures have technical resistance at $8.50, and above there at $9. One could argue that if corn and soybean futures continue to trend higher, that $9 futures may be achievable yet this spring, especially if fund traders continue to exit short positions, and decide to go long especially if the U.S. winter wheat crop conditions show little improvement on Feb. 22.

These are historic times

As I have been talking about for months, there are nine grain and oilseed commodities that have tight ending stocks. That by itself, merits support for grain prices. But add to it inflationary concerns, and there is a potential recipe for even higher grain and oilseed prices in the future.

Traditionally, wheat can lead the big rallies for the grain complex. This might be the year for the perfect storm for a major price rally for wheat due to a combination of weather worries, geo-politics, fund buying, and strong global demand.

Editor’s note: Naomi Blohm is a marketing advisor with Total Farm Marketing by Stewart-Marketing and she is a regular contributor to the Iowa PBS series “Market to Market.” She can be reached at [email protected].