- This week has seen a number of questions asked about the role of the Kansas Wheat Quality Council annual crop tour and the selloff in Kansas City wheat futures.
- Following close behind are the queries having to do with the latest Black Sea Grain Agreement and the breakdown of the Chicago wheat market.
- Weather isn't left out of the conversant, with many wanting to know if US Northern Plains spring wheat growers will be able to get the 2023 crop planted due to continued wet field conditions.
As many of you know, I was born in a wheat field a number of decades ago. Not literally, though I did spend my early years growing up in Kansas, a time that included driving 100-bushel trucks of wheat to the local co-op during the heat of summer harvest. As I looked for something other than farming to do for a career, I went to work for that same co-op (and others in the area) dumping trucks, becoming a grain merchandiser, and eventually a commodity broker. The one constant, at least until I moved to Omaha nearly 20 years ago, was wheat. For many years, whenever I appeared on the Iowa Public Television’s Market to Market program, and other media outlets, because of my background the conversation almost always began with a discussion on wheat. I’ve been thinking a lot about those days of late as three big questions about the wheat sector have popped up, each one having to do with a different market.
The largest wheat crop the US year in and year out is from my home state of Kansas, hard red winter (HRW). For as long as I can remember, I’ve had a great deal of fun talking about the Hard Winter Wheat Tour that sends scouts scurrying across Kansas every May. Do I take the findings seriously? No. I know too many of the folks who have been on the tour and have heard too many anecdotes of scouts walking out into alfalfa fields to estimate its wheat yield. With that in mind, one of the most frequently asked questions this week has been something akin to “Did Kansas City (HRW) wheat futures sell off because of the yield potential reported from the Tour?” My answer is, “maybe”. I can’t flat out say “no”, because one algo might’ve been triggered by the findings that don’t take abandoned acres or zeroed out fields into account. On the other hand, I did read where the Tour’s total production number came in at 178 million bushels as compared to the previous 5-year average of just over 300 mb. But those who actually study markets already knew there was a serious problem with the 2023 crop. A comparison of Barchart Cost of Carry tables from February 28 (the end of 2022-2023 Q2) and March 18 (nearing the end of Q3) shows the lead Kansas City (HRW) July-September spread moving from covering a bullish 16% calculated full commercial carry (cfcc) to a strong inverse of 11.5 cents. What sparked the selloff in the July contract this week? July KC (KEN23) rallied as much as $1.8250 from May 2 through May 17, and simply ran out of buy orders. For now. This created a vacuum underneath the contract with retracement targets of $8.49 and $8.2750. The contract posted a low of $8.4575 during Thursday’s break.
Is the recently announced extension of the Black Sea Grain Agreement hammering the Chicago (SRW) market (ZWN23)? Again my answer is “maybe”, but if I was running a fund it certainly would not be tied to agreements made with Russia. About a year ago I talked about how Russia’s invasion of Ukraine could reshuffle the global wheat supply and demand deck, particularly with a drought going on in India. As the year played out, US wheat exports proved to be a major market disappointment with the latest weekly export sales and shipments update showing a pace projection for total shipments of 660 mb. This was actually down from last year’s reported shipments of 686 mb. As for US soft red winter (SRW) wheat, total shipments were 95 mb as compared to the same week last year of 98 mb. I concluded my piece from last May by saying we need to keep an eye on the Chicago (SRW) wheat’s forward curve. As of Thursday’s close, the July-September spread was covering 71% cfcc while the September-December covered 68% cfcc. The 2023-2024 futures spreads started to turn bearish at the end of February, meaning the idea of slow demand for US supplies isn’t anything new.
Will the US 2023 spring wheat crop get planted across the Northern Plains? I’ll hedge my bets with this one as well and say, partially. Talking to folks in the area and some of them have yet to get in the field after massive late winter snows and spring rains came. If we go back to the silliness that is the annual Prospective Plantings report from late March, USDA guessed US spring wheat acres to be 10.6 million, down 2% from the previous year. But what if only 85% of those expected acres get planted? Or 75%? The answer to the original question would still be, “Yes, the 2023 crop got planted”, just maybe not as much as was expected. The fun part of this exercise is thinking about all those “big fans of weekly crop progress reports” that I’ve had to deal with over the decades. Let’s say US spring wheat planted acres actually turns out to be 8 million, will NASS go back and change all its made up weekly numbers? Of course not. For the record, if we look back at last Monday’s foolishness we see NASS penciled in 40% planted. Okay, so 40% of 10.6 million acres (ma) is roughly 4.25 ma, or 53% of 8 ma. But my guess is the folks who get all frothy over these things every week don’t think about things like this. The bottom line is Minneapolis (HRS) futures (MWU23) spreads have been bullish, even if not inverted, as far back as August 2022.
As Forrest Gump said, “That’s all I have to say about that.”
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
