A lot of assumptions this summer have surfaced regarding the potential of spring wheat keeping the 2008 $20 per bushel in sight. That is what happened the last time there was a bust in hard red spring wheat (HRSW) production. The questions of if fundamentals really matter anymore have surfaced recently. A look at price discovery for HRSW gives some insight.
STOCKS TELL THE STORY
The comparison of the fundamentals affecting price discovery shown in the comparisons of ending stocks for 2008, 2011, 2017 and this year’s estimate tell the story. In 2008 we had 88 million bushels of carryover versus a still tight 116 million bushels for now.
The difference lies in total wheat of 292 million bushels in 2008, where all classes of wheat were tight. Compare that to today’s ending stocks of 627 million bushels. So on the surface the current situation is fundamentally far different than 2008 (see chart).
From a futures price standpoint, price in 2021 discounted the fundamentals by May and then posted our first proprietary sell signal since the buy signal in early January 2021. The timing and price of the 2021 rally fell between that of 2017 and 2011 right in line with what the fundamentals would suggest.
The most intriguing numbers were from the September FSA wheat data of 49.3 million acres compared to the USDA September acres of 46.7 million acres.
If failed acres of 600 million are removed, it leaves FSA at 48.72 planted acres (2.02 million higher than USDA). Winter wheat acres were certified a long time ago, so where are those acres? Wheat will not be addressed until the Sept. 30 Small Grains Annual Summary, which breeds more uncertainty.
TIMING IS EVERYTHING
Technical price analysis along with fundamental supply and demand have served me well for decades and will continue to do so. Timing is everything and is valid with a good fundamental outlook as a complement. TP
Jerry Gulke farms in Illinois and has interests in North Dakota. He is president of Gulke Group, a market advisory firm. Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee the advice we give will result in profitable trades. Past performance is not indicative of future results.
