History gives hope for wheat rally Be sure to reward $2 rally By Bryce Knorr, Senior Grain Market Analyst For years the wheat market stagnated waiting for a single trigger: A sharp reduction in global production. That worldwide event finally occurred this year, lifting prices to four-year highs. Wheat is a market that likes to trend once it gets going. Bottoms typically occur around five years apart. Rallies eat up the first three years of the cycle, with down markets taking up the next two. At least that s the Cliff s Notes version of wheat marketing. The last cycle took nearly seven years to confirm. Fallout from the financial collapse a decade ago soured investors on commodities. And while U.S. acreage dwindled, other producers gained market share, namely Russia and its former Soviet Union satel-lites. Good weather and improving technology boosted their yields twice as fast as those in the U.S. That streak ended this year in the Black Sea region. Yields and acres both declined, part of a pattern seen across the result of Europe too. Now, a brewing El Nino warming of the equatorial Pacific threatens to slash Australian production by a third. If wheat returns to its old cycle, prices might be expected to rally into 2019. Dry conditions for seeding next year s winter wheat crop extend from the southwest Plains to France, though Ukraine and Russia are starting to trend wetter. Production in Argentina should rebound, with good moisture as seeding ends. A return to normal production will be needed to keep inventories from dropping further. The stocks-to-use ratio among major exports could drop to its lowest level ever by the summer of 2019. But higher prices should lure more acres into production too. Futures are starting to show signs of fatigue, and that s especially a warning sign for soft red winter wheat, which tends to top first in bullish years. Hard wheat contracts can extend rallies into September if conditions for seeding are a concern. Storms over the next week could help ease some of those concerns. As a result, it s time to get more aggressive pricing 2018 inventory after a $2 rally. Deferred futures are moving into my projected selling ranges. Winter wheat carries are rising again, not a bullish sign, but provide opportunity for good storage hedges for those with on farm storage and year-round markets. Also get started price 2019 winter wheat production. USDA s Aug. 10 report could lower the size of the U.S. crop, but this rally is about what s happening around the world.
Wheat Supply & Demand Table USDA Bryce 2016 2017 2018 2017 2018 Area Planted 50,154 46,012 47,300 46,012 47,821 Harvested 43,890 37,586 38,900 37,586 38,336 Yield 52.6 46.3 48.3 46.3 48.6 Beginning stocks 976 1,181 1,100 1,181 1,100 Production 2,309 1,741 1,881 1,741 1,863 Imports 118 157 135 157 131 Supply, total 3,402 3,078 3,117 3,079 3,094 Food 955 966 965 954 953 Seed 61 62 62 62 64 Feed and residual 161 50 130 50 84 Domestic, total 1,171 1,077 1,157 1,077 1,101 Exports 1,051 901 975 901 965 Use, total 2,222 1,979 2,132 1,979 2,066 Ending stocks 1,181 1,100 985 1,100 1,028 Average price $3.89 $4.73 $5.00 $3.91 $5.19 Stocks to use ratio 53.1% 55.6% 46.2% 55.6% 49.8% Ave. Nearby Futures Chicago $5.65 Kansas City Hard Red $5.79 Minneapolis $6.10 Top Third of Price Range 2018 Chicago $5.81 to $6.17 Kansas City Hard Red $5.99 to $6.40 Minneapolis $6.10 to $6.65
Beginning Stocks Production Total Supply Domestic use Exports Total Use Ending stocks Soft Red Winter 10-11 242 237 508 228 109 337 171 11-12 171 458 662 313 163 477 185 12-13 185 420 623 306 193 499 124 13-14 124 565 709 311 285 595 114 14-15 113 455 581 295 133 428 153 15-16 154 359 531 255 120 375 157 16-17 157 345 535 228 92 320 215 17-18 215 292 524 229 90 319 205 18-19 205 303 523 229 125 354 169 18-19 BK 205 313 535 223 140 363 172 White 10-11 80 275 362 95 182 277 85 11-12 85 314 407 127 216 343 64 12-13 64 259 330 92 175 267 63 13-14 63 268 339 117 171 289 50 14-15 50 224 284 91 146 217 67 15-16 67 221 294 73 147 220 74 16-17 74 286 367 98 163 262 105 17-18 105 258 371 90 194 284 87 18-19 87 262 359 94 190 384 75 18-19 BK 87 244 339 86 152 237 102 Durum 10-11 35 106 173 95 43 138 35 11-12 35 50 122 70 27 97 25 12-13 25 82 143 91 29 120 23 13-14 23 62 129 77 30 107 22 14-15 22 53 120 58 36 94 26 15-16 26 84 143 86 29 116 28 16-17 28 104 162 102 24 126 36 17-18 36 55 141 85 20 105 36 18-19 36 75 151 85 25 110 41 18-19 BK 36 78 164 73 43 116 48 Hard Red Spring 10-11 234 570 832 309 339 647 185 11-12 185 398 619 223 245 468 151 12-13 151 505 699 302 232 534 165 13-14 165 490 733 317 247 564 169 14-15 169 556 791 307 271 578 213 15-16 212 568 828 304 252 556 272 16-17 272 493 807 251 321 572 235 17-18 235 385 695 275 228 504 191 18-19 191 584 830 277 270 547 283 18-19 BK 191 592 858 248 284 532 326 Hard Red Winter 10-11 385 1,018 1,404 403 616 1,018 386 11-12 386 780 1,167 452 398 850 317 12-13 317 1,000 1,339 615 381 996 343 13-14 343 747 1,109 426 449 872 237 14-15 237 738 984 421 270 391 294 15-16 294 830 1,130 458 226 685 446 16-17 446 1,082 1,533 488 455 943 589 17-18 589 750 1,346 394 371 765 581 18-19 581 657 1,254 472 365 837 417 18-19 BK 581 635 1,223 430 360 790 434
55 Projected U.S. Spring Wheat Yields 53 51 49 47 45 43 41 39 37 35 5/21 6/4 6/18 7/2 7/16 7/30 8/13 8/27 9/10 Previous year State Model U.S. Model
80% ODDS 'EL NINO' WILL EMERGE 70% 60% 50% 40% 30% 20% 10% 0% JJA 2018 JAS 2018 ASO 2018 SON 2018 OND 2018 NDJ 2018 DJF 2019 JFM 2019 FMA 2019 Source: NOAA
Total Ending Stocks of Major Exporters 120,000 100,000 80,000 60,000 40,000 20,000-1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Includes U.S., Argentina, Australia, Canada, EU and FSU 500 450 400 350 300 250 200 150 100 50 0 Total Wheat Exports (Year to Date) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Total Commitments % of USDA Forecast
Accumulated Wheat Export Shipments 250 200 150 100 50-20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Total Shipments % of USDA Forecast 300 250 200 150 100 50 0 Hard Red Winter Wheat Exports (Year to Date) 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast
250 200 150 100 50 0 Soft Red Winter Wheat Exports (Year to Date) 80% 70% 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast 140 120 100 80 60 40 20 0 Hard Red Spring Wheat Exports (Year to Date) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Total Commitments % of USDA Forecast
100 90 80 70 60 50 40 30 20 10 0 White Wheat Exports (Year to Date) 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast Weekly Wheat Export Inspections 35,000 30,000 Thousand bushels 25,000 20,000 15,000 10,000 5,000 2018-19 2017-2018 5-Yr. Avg. 0 J J A S O N D J F M A M SOURCE: USDA
Chicago December Futures 615 590 565 540 515 490 465 440 415 390 365 340 315 290 1/6 3/6 5/6 7/6 9/6 11/6 Bull Non-Bull Dec. 2018 Dec-17 Chicago December Wheat Futures Seasonal Trend Start Date +1 Week +2 Weeks +3 Weeks +4 Weeks +5 Weeks 8/6 8/13 8/20 8/27 9/3 9/10 Ave. Gain/Loss (2.7) (0.5) 0.8 (2.7) (1.5) % Up 23/44 20/44 21/44 19/44 19/44 % Down 20/44 24/44 23/44 25/44 25/44 Ave. Gain - Up year 7.5 17.0 20.4 20.9 26.1 Ave Loss - Down Year (14.6) (15.0) (17.2) (20.6) (22.4) Biggest Gain 34.8 101.0 81.0 92.0 177.5 Biggest Loss (71.5) (101.0) (126.8) (106.5) (111.3) This table shows the typical seasonal pattern at weekly intervals from the start date, based on average daily futures prices from 1974-2017. Gains and losses are based on the difference between the closing price on the start date and the closing price on the weekly date shown.
Kansas City December Futures 625 600 575 550 525 500 475 450 425 400 375 350 1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1 10/1 11/1 Bull Years Non-Bull Years Dec. 2018 Seasonal Trend for Kansas City December Futures Start +1 Week +2 Weeks +3 Weeks +4 Weeks +5 Weeks +6 Weeks 8/6 8/13 8/20 8/27 9/3 9/10 9/17 Ave. Gain/Loss (0.0) (0.7) (1.2) 1.2 1.8 (2.1) % Up 23/42 22/42 21/42 19/42 20/42 18/42 % Down 17/42 19/42 21/42 22/42 22/42 24/42 Ave. Gain - Up year 11.6 14.7 20.7 25.9 30.0 33.5 Ave Loss - Down Year (15.7) (18.5) (23.1) (20.0) (23.8) (28.9) Biggest Gain 37.0 93.8 78.0 99.0 166.3 195.3 Biggest Loss (55.0) (74.8) (90.0) (68.3) (104.5) (97.0) This table shows the typical seasonal pattern at weekly intervals from the start date, based on average daily futures prices from 1976-2017. Gains and losses are based on the difference between the closing price on the start date and the closing price on the weekly date shown.
Minneapolis December Futures 700 650 600 550 500 450 400 350 Feb Mar Apr May Jun Jul Aug Sep Oct Nov December 2018 Bull Years Bear Years
700 650 600 Kansas City July Futures 390 380 370 360 550 500 350 340 330 450 320 310 400 8/1 10/1 12/1 2/1 4/1 6/1 300 Bull Year July 2018 Normal Year 700 Minneapolis September Futures Normal Year 410 650 600 550 500 400 390 380 370 360 450 1/4 2/4 3/4 4/4 5/4 6/4 7/4 8/4 350 Bull Years Sepember 2018 Normal Years
650 Chicago July Futures 600 550 500 450 400 350 300 5/25 7/25 9/25 11/25 1/25 3/25 5/25 Bull Non-Bull Jul-18 Chicago July Wheat Futures Seasonal Trend Start Date +1 Week +2 Weeks +3 Weeks +4 Weeks +5 Weeks +6 Weeks 5/15 5/22 5/29 6/5 6/12 6/19 6/26 Ave. Gain/Loss (2.3) (4.0) (4.7) (5.6) (4.7) (3.8) % Up 19/43 14/43 18/43 17/43 15/43 18/43 % Down 24/43 29/43 25/43 26/43 28/43 25/43 Ave. Gain - Up year 10.1 20.6 18.8 21.0 33.5 38.1 Ave Loss - Down Year (12.2) (15.9) (21.5) (23.0) (25.2) (34.0) Biggest Gain 56.5 61.8 78.8 64.8 104.5 113.8 Biggest Loss (34.8) (52.0) (87.0) (93.0) (96.0) (139.5) This table shows the typical seasonal pattern at weekly intervals from the start date, based on average daily futures prices from 1974-2017. Gains and losses are based on the difference between the closing price on the start date and the closing price on the weekly date shown.
150000 100000 Commitment of Traders - Chicago Wheat $7.00 $6.50 50000 $6.00 net position in contracts 0-50000 -100000-150000 $5.50 $5.00 $4.50 $4.00 $3.50 nearby futures -200000 1/15 3/15 5/15 7/15 9/15 11/15 1/16 3/16 5/16 7/16 9/16 11/16 1/17 3/17 5/17 7/17 9/17 11/17 1/18 3/18 5/18 7/18 $3.00 Source: CFTC Index funds Hedge funds Futures 100000 Commitment of Traders - K.C. Wheat $7.00 80000 $6.50 net position in contracts 60000 40000 20000 0-20000 -40000 $6.00 $5.50 $5.00 $4.50 nearby futures -60000 $4.00-80000 1/15 4/15 7/15 10/15 1/16 4/16 7/16 10/16 1/17 4/17 7/17 10/17 1/18 4/18 7/18 $3.50 Source: CFTC Index funds Hedge funds Futures
Commitment of Traders - Minneapolis Wheat (Futures and Options Combined) 25000 20000 $8.00 Contracts 15000 10000 5000 0-5000 -10000-15000 1/14 7/14 1/15 7/15 1/16 7/16 1/17 7/17 1/18 7/18 $7.00 $6.00 $5.00 $4.00 $3.00 Large traders Nearby Futures