Weather will drive the wheat market from here on out, analysts say
Bullish signs in the wheat market have been building as hot, dry weather has withered prospects for competing wheat and U.S. corn crops.
"Weather in the United States and world is going to be the driver for the wheat market," said Greg Wagner, GWX - Ag Advisors, based in the Chicago area.
The direct effect will be on wheat yields and quality, and the indirect effect will be through the corn market, said Wagner in comments on a CME Group panel discussion after floor trading closed June 29.
September Chicago wheat futures already soared more than $1 in June to settle at $7.5725 on June 29. September futures at Kansas City made a similar trek in settlements from $6.53 June 1 to $7.56 on June 29, with several contracts reaching into the $8 range. At Minneapolis, September wheat futures gained more than $1 in the month to settle June 29 at $8.445.
The wheat market is "in a bit of a follower mode," said Dan O'Brien, economist at Kansas State University.
"It's hard to see corn having a problem and high prices this fall, and wheat not following suit to some degree, given the potential for substituting between crops in feed rations if we get tight on corn," O'Brien said.
Kansas wheat basis at major terminals backed off in May, but recovered and stayed strong through harvest, O'Brien said.
Kansas elevators didn't carry over big supplies of grain from last year. The state's wheat yields are variable and the Kansas crop may reach 340 million to 360 million bushels, rather than the indications of more than 400 million bushels on the Kansas wheat tour early in May.
"In really good years, elevators try to move the wheat crop fast before the fall crop hits," O'Brien said. "Now, there are concerns about the fall crop," mainly corn and grain sorghum. "For most elevators in Kansas, I think our biggest worry isn't huge piles of grain this fall. The biggest worry is adequate harvest of fall crops."
Wheat Acreage Surprise
"When we break down the acreage number, there were some surprises here," Wagner said of the wheat numbers in USDA's June 29 Acreage report. "Particularly the trade was anticipating an increase in spring wheat acres. That did not occur."
Private analysts had expected USDA to report about 12.7 million acres of spring wheat. "USDA came in at 12 million acres, so that's slightly supportive," said Wagner.