Market Insider

Where Can Wheat Prices Go from Here?

Wheat prices started to tick higher past the Canadian May Long Weekend as the market started to price in the risk of some drier conditions in wheat-producing countries around the world. Until now, the grain market has struggled to find any fresh bullish news to help push wheat prices higher.  The adage of “plant into dust and bins will bust” is ceremoniously being shouted from analysts and farmers alike, but the dryness is a cause for speculation.

Moisture continues to be a concern in a few places in Western Canada. At this time a year ago, Alberta’s soil moisture conditions were rated about 7% poor-to-fair. In the most recent crop report, that poor-to-fair percentage is now 27%. In Saskatchewan, soil moisture is considered 53% short or very short. A year ago, only 10% of the province’s fields were rated short or very short when it came to soil moisture.

That being said, spring wheat prices in Minneapolis, gained about 2.5%, or 15¢ for the week to close at nearly $6.50 USD / bushel on the front month and about a nickel higher on new crop contracts. For winter wheat prices, both Chicago and Kansas City futures markets were up by a quarter this week, or more than 4% on said dryness concerns.

While the memories of last year’s intense rally in grain prices are getting discussed more and more, we do need to be cognizant of some bias. First, the world is still awash in wheat. Second, there are more spring wheat acres going in than last year. Third, wheat is a weed and somehow finds a way to grow. If you doubt that, look at last year’s surprise in production. That being said, again, we’re cognizant of the soil moisture condition and so we’ll be watching that closely going forward. After all, seeding just finished and the growing season has a long way to go.

For winter wheat prices, the quality and size of the US winter wheat crop is less than what it was last year. This in mind, the average forecast from FocusEconomics for winter wheat futures values in Chicago is for $5.08 USD /bushel for Chicago soft red winter wheat prices in 4Q2018 and $5.60 for the same period in 2019. For perspective, those contracts closed on May 25th, 2018 at $5.785 and $6.138, respectively. Worth noting though is on the price chart attached, CPS wheat prices are an average of 38% higher year-over-year. Comparably, hard red spring wheat prices across the Canadian Prairies are up an average of 8% while durum is just 3% higher than it was a this time a year ago.

APK Inform says that Russia has doubled its grain exports over the past five years and will hit nearly 56 MMT in 2018/19. This is about 5 MMT more than the current 2018/19 estimate. This includes 43.4 MMT of wheat. The Middle East is expected to be the main destination of their exports, continuing the trend of the past 2 years: 30% of 2016/17’s Russian exports went to the region but it has 72% thus far in 2017/18. Currently, the Russia’s Ag Ministry says that total grain exports have now reached 46.6 MMT, up 45% year-over-year. This includes 36.2 MMT of wheat, which is also up +46% year-over-year.

Coming back to soil moisture, Russia and Australia are trending a bit drier and it’s clear that the market is starting to pay attention to that. While it’s extremely unlikely to see a 2008-like drought year (and corresponding prices), the usual weather premium is certainly on the mind of the market. While we want some germination in the fields, it does feel good to see some germination of a bullish rally this week. Going forward though, the next few weeks of activity and precipitation (or perhaps, the lack thereof) should provide some clearer direction how long this rally can last.

To growth,  

Brennan Turner
President & CEO |