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Wheat Outlook - Wheat market on verge of giving

Drought isn’t the problem this year.

Bryce Knorr 1 | Feb 13, 2019

The wheat market had a bright, shining moment last summer, when threats to crops across Europe and into the Black Sea and Australia raised hopes the time was right for the U.S. to begin selling lots of wheat to a hungry world. But yields overseas outside of northern Europe and Australia turned out better than expected, and those sales by and large were slow to materialize. Business finally picked up as the calendar flipped to 2019, but it may be too little, too late for a wheat market on the verge of life support.

July hard red winter wheat succumbed to new contract lows this week and new crop SRW didn’t fare much better. It made a triple bottom on the chart that could be tested soon.

USDA’s long-awaited reports released Feb. 8 confirmed winter wheat seedings at the lowest level since 1909. But stocks might not go down much, if at all because demand is basically flat, and 1 billion bushels of leftover supplies is plenty.

While the U.S. succeeded in capturing a couple loads in Egypt’s latest tender, that big importer will begin buying local supplies in a couple of months. So far all signs point to an even more competitive global market for new crop, as long as yields hold up in Ukraine and Russia.

Russia, which has assumed the mantle of the world’s largest exporter, is out of the market now as supplies thin out, pushing prices to record highs there when valued in weak rubles.


The U.S. is enjoying better success in Asia, including growing markets in Indonesia and the Philippines. Competition for those buyers in 2019 could hinge in part on whether Australian recovers from El Nino- induced losses.

Though USDA finally released its seeding survey and updated stocks estimates, one series of reports is still lacking. Updated condition reports typically are put out round the end of each month over the winter, providing at least a few clues about how the winter wheat crop is faring. Only Texas apparently has published any information so far, but weather hasn’t been exactly perfect from the central Plains through the Midwest. The polar vortex may have damaged bare fields from the eastern Plains into the Ohio River Valley. Flooding and ice may be just as much of an issue from the Delta east.

Otherwise, drought doesn’t appear to be a threat this year. Just 4% of the winter wheat crop is in an affected area according to the latest Drought Monitor, and forecasts look wet into spring.

February can be a make-or-break time for winter wheat futures. Odds of a rally are just one in three. The only strong part of the market now may be what was once its weakest link: basis. With only 2 lots registered in Kansas and 10 in Toledo, variable storage rates built into futures succeeded in strengthening basis some. Carries are far below where they were a year ago, and could eventually offer some hedging opportunities.

Spring wheat seasonally has a longer window for potential sales as the market ponders acreage. That has March Minneapolis above its 100-day moving average, with another dime or so upside to the next resistance.

Wheat supplies may not tighten much over the next year, even with the lowest winter wheat seedings since 1909.

Drought isn’t the issue with spring wheat this year as most of the growing region escaped any sign of drought.

July SRW futures are trending lower, a sign of a bearish year for prices that makes rallies more difficult.

There an old saying in the market: Triple bottoms don’t hold. The adage could be tested soon.

Download a complete version of the outlook with extensive charts and analysis using the Download button at the end of this report.

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