The forward curve for spring wheat is simply a line that connects the price for each consecutive contract for a single point in time. For example, the attached forward curve shows the line connecting the Jan. 20 March close of $6.37 1/2/bushel (bu) with the May close of $6.46/bu and the July close of $6.50 1/4/bu and so on.
The first half of this chart signals a rising forward curve, or carry market, with each contract higher than the one that precedes it through to the December 2021 contract that closed at $6.55/bu. DTN's most recent strategy analysis points to front-end weakness, with the March/July spread of more than 3 cents/month viewed as indicating a bearish level of demand.
Despite the recent run-up in futures, with the nearby March contract reaching a fresh contract high of $6.53 1/2/bu on Jan. 19, the highest level traded since 2017, global stocks of wheat are to reach a record carryout of 313.2 million metric tons (mmt), representing a bearish stocks/use ratio of 41.2%. U.S. spring wheat stocks are forecast to grow modestly in 2020-21, to a level representing an even more bearish 48% of use, only a modest improvement from the 50% calculated based on 2019-20 estimates.
What is interesting on this chart is the change in sentiment shown from December 2021 forward, where the downward-sloping line representing a bullish, inverted market, with each contract closing above the contract following it. This begins with an inverse seen in the December/March spread (December closing over the March contract), which weakened 1/2 cent today to close at 2 cents. During the past five years, this spread has ranged from a 6-cent carry to a 14 1/2-cent carry on this date, averaging minus 9 1/2 cents (March trading over the December).
It is difficult to know just what traders are responding to, as no agencies have released forecasts for the 2021-22 crop. Agriculture and Agri-Food Canada will release its January supply and demand forecasts any day now, which will include a first look at Canada's new-crop supply and demand estimates for 2021-22.
We do know that Russia will enter the 2021-22 crop year with the possibility of a variable export tax that may be utilized to limit exports from June 1 forward. It's also conceivable that spring wheat acres in the northern states of the U.S. will face fierce competition from row crops, while on the Prairies, canola and pulse acres may limit spring wheat acres. In addition, the hard red winter wheat growing areas of the U.S. is currently facing dry conditions and bears watching.
Cliff Jamieson can be reached at firstname.lastname@example.org
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