MarketsFarm — Weather-related quality issues with North American spring wheat crops saw Minneapolis spring wheat futures rally sharply over the past three weeks, with more room to the upside as concerns mount over the state of the crop.
The December contract hit a multi-year low of $4.865 per bushel at the beginning of September, but has since rallied to settle at $5.535 per bushel on Wednesday (all figures US$).
Good crop conditions earlier in the growing season accounted for the past weakness in spring wheat, with the Minneapolis futures only trading at 20 cents above Chicago wheat as recently as Sept. 16. That spread has since widened above 70 cents.
“The quality of this crop has really gone downhill as this crop stands out there,” said Tom Lilja of Progressive Ag at Fargo, N.D. Harvested samples were showing low falling numbers and high vomitoxin, he said, while wheat still standing was dealing with heavy rains.
“Harvest problems always tend to get the market excited,” said Lilja.
The U.S. spring wheat harvest was 87 per cent complete as of Sunday, which was 10 points behind average, according to the latest U.S. Department of Agriculture report. Canada’s spring wheat harvest is also running behind normal, according to provincial crop reports.
In addition to the North American crop concerns, dryness in Australia is also propping up spring wheat futures, said Lilja. He expected any rains in Australia would temper the upside in the U.S. futures.
Europe had a relatively decent wheat crop this year, according to Lilja, which could also limit the upside in the futures and cut into some demand.
However, “our higher-quality wheat is having some problems and there is still decent demand for higher-protein wheat, said Lilja.
Protein premiums are already being offered at some elevators, and Lilja expected the spreads for higher-protein wheat would likely widen in the cash market.
“The futures market doesn’t necessarily have to run, you could take care of some of this with basis levels.”
— Phil Franz-Warkentin reports for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.