Todd’s Take


first_imgShare Facebook Twitter Google + LinkedIn Pinterest By Todd HultmanDTN AnalystBack in early May 2017, “The Other Wheat Sneaks Higher,” was this column’s attempt to describe bullish changes happening in spring wheat prices. At the time, no one knew that drought would take prices from the low-$5s in early May to $7.78 a bushel by early July. In fact, moderate drought conditions had not even appeared yet on the U.S. Drought Monitor. (https://www.dtnpf.com/…) One of the early bullish clues talked about was how commercials responded to lower prices in early April by going net-long. By May 26, which is slightly more than one year ago, DTN’s cash index of spring wheat prices amped up the bullish argument when it closed at a new three-month high. The drought was still not considered serious, but the market was clearly showing bullish concerns. By the time extreme drought conditions began to show up in Montana and the Dakotas it was June 20, and prices were already at $6.15 a bushel. I mention this to point out how paying attention to the market’s own clues can be helpful, even before the reasons for a certain price behavior can be explained. Strangely enough, as we now look at DTN’s national index of cash spring wheat prices, we are once again starting to see bullish market clues emerge without a strong fundamental explanation. The most bullish clue was Friday’s ending price of $6.33 a bushel, the highest weekly close in nine months. Getting to Friday’s new high was a bit of a roller coaster as prices dove after USDA estimated 12.6 million acres (ma) of spring wheat plantings on March 31, a 15% increase on the year. Prices bounced back after winter weather disrupted planting in April and when the April 10 column, “Cold Puts the Spring Back in Wheat,” was released, it was not clear how planting would go in 2018. (https://www.dtnpf.com/…) Tuesday afternoon’s Crop Progress report from USDA is likely to show planting near 90% complete, near its five-year average. Even though spring wheat planting is mostly back on track, prices left behind a bullish outside weekly reversal in early April that still stands — a technical mark of support in the market. As it was a year ago, it is difficult to explain yet just why spring wheat prices are rising from a fundamental point of view, but we can see the September/December futures spread is showing a 5 1/2-cent premium in the December contract, which suggests bullish interest from commercial buying. We also know that the demand source is likely domestic, as export shipments of U.S. spring wheat are down 30% from a year ago. Another factor with bullish potential to keep an eye on is an area of moderate drought in the eastern Dakotas. It is not serious yet, but we have to note that the current drought is worse than conditions a year ago at this time. Dry conditions are also an early concern in Manitoba and southern Saskatchewan. We cannot say that just because spring wheat prices are showing bullish clues as they were last year, the U.S. crop is going to suffer another drought and produce an early summer rally of $2 or more. However, Friday’s new nine-month high deserves respect as it appears to be backed up by firm commercial demand. It is a little odd how prices appear to be repeating last year’s bullish breakout. Even though the fundamental reasons are not yet clear for spring wheat, the bullish potential is there. Todd Hultman can be reached at [email protected] Follow him on Twitter @ToddHultman1(ES/BAS/SK)© Copyright 2018 DTN/The Progressive Farmer. All rights reserved.last_img

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