12 July 2017

Wild Wheat Swings Spurred by U.S. Drought Threat, Export Outlook

Spring wheat prices posted wide swings after reaching a four-year high as traders weighed prospects for an intensifying drought in the High Plains against signs that U.S. supplies aren’t competitive in export markets.

On the Minneapolis Grain Exchange, high protein spring wheat for September delivery rose 0.5 percent to close at $8.1975 a bushel. Earlier, the price jumped as much as 6.4 percent to $8.685, the highest for a most-active contract since Feb. 1, 2013. The commodity then slumped as much as 5.1 percent, pushing 60-day volatility to the highest since August 2015.

Drought and shrinking acreage across the High Plains has driven prices up by 52 percent this year. Much of Montana and the Dakotas were in moderate to extreme droughts as of June 27, and the area for all varieties of wheat planted for 2017 is the smallest on record since data starts in 1919, according to the U.S. Department of Agriculture. Egypt, the world’s top buyer, was said to have bought 410,000 metric tons in a tender on Wednesday with cargoes from Russia and Romania, shunning U.S. supplies.

“U.S. wheat is pricing itself out of the world market,” Arlan Suderman, chief commodities economist at INTL FCStone in Kansas City, Missouri, said in a telephone interview. Farmers are collecting better-quality winter wheat than expected, reducing high-protein grade shortfall concerns, he said.

On the Chicago Board of Trade, soft red winter wheat futures for September delivery rose 0.9 percent to $5.60 a bushel after earlier reaching $5.745, the highest since July 14, 2015. The price recovered to settle higher after dropping as much as 3.3 percent. Aggregate trading more than doubled compared with the 100-day average, according to data compiled by Bloomberg.

“Mills have backed off bids for higher protein wheat,” Suderman said. “That may be a sign that the crops concerns are not as dire as feared.”

In Chicago, hard red winter wheat futures for September delivery climbed 1.8 percent to $5.695 a bushel after reaching $5.7725, the highest since July 10, 2015. Earlier, the price fell as much as 3.3 percent.

Effective Wednesday, CME Group raised margin requirements for both wheat markets. The most-active hard red contract is up 20% and soft red is up 17%.

“Wheat prices went too far in a rather well-supplied world situation,” Greg Grow, the director of agribusiness at Chicago-based Archer Financial Services, said in a telephone interview. “It’s a money management game” after margins went up, he said.

The U.S. is the world’s top wheat exporter. The soft red winter grade is used to make flour for cookies and cakes, and the hard red winter variety is also used to make bread.

Source: https://www.bloomberg.com