Todd's Take

Reporting on grain markets is often like taking in a baseball game. You can watch a lot of innings go by where nothing happens. The next moment, you turn your head and the game changes in an instant. That's how it went for wheat prices this week.

In this column just last week, I explained how fundamentals were subtly becoming more bullish in wheat with USDA expecting exportable world ending supplies to hit their lowest levels in six years. We had talked about areas like the southwestern U.S. Plains, southern Russia, and parts of Europe and Australia where crops were dry, but damage seemed limited and USDA was estimating a 3% reduction in world wheat production -- not a scenario worth panicking over.

Here is the link to last week's column:

https://www.dtnpf.com/…

Watching golf's Open Championship late last week at Carnoustie, Scotland, it was obvious that the fairways were brown, but little did I know that those dry conditions were about to hit a tipping point for wheat.

Here in the U.S., wildfires broke out in Oregon late last week and some wheat fields caught fire, likely soft white wheat. The Climate Prediction Center added to those concerns, anticipating increased drought in the Pacific Northwest the next few months. Concerns temporarily eased Monday afternoon after USDA gave the U.S. spring wheat crop a 79% good-to-excellent rating, down just one point from the previous week.

It was on Wednesday when wheat prices took a turn higher. Even at 6 a.m. CDT, September Chicago wheat was already trading nearly 12 cents higher on the day, following the lead of Europe's higher prices. By the time Europe's markets closed, their December milling wheat had broken above 200 euros per metric ton for the first time in three years, and the U.S. market noticed. All three U.S. wheats closed up over 30 cents that day, turning all three trends higher.

Thursday's trading was not as entertaining, as winter wheat prices pulled back roughly 6 cents. However, September Minneapolis wheat held a half-cent higher after the Wheat Quality Council's Spring Wheat Tour casted doubts on USDA's high, 79% good-to-excellent ratings.

Fundamentally, however, Thursday's report from the International Grains Council (IGC) gave support to USDA's contention that exportable supplies of world wheat would be down significantly in 2018-19. IGC has supplies down 25% in 2018-19. IGC also estimated world wheat production down 5% in 2018-19 from the previous year, a deeper cut than the 3% trim USDA is expecting.

Russ Quinn, the host of DTN's Closing Market Video on July 25, asked a good question that many of us would like to know. Paraphrasing, Russ asked, given all the things happening in wheat, why did prices rise so strong on Wednesday?

The interesting part of the question was that DTN's Closing Market Video first noted new highs in European wheat prices back on July 3 and again on July 20 with the title, "Vive Le Wheat!" I had also written multiple times about how winter wheat prices were holding impressively above their 2018 lows, even though they were technically in downtrends and past their seasonal time for a peak in prices.

I mention the above to point out that wheat prices didn't just jump up out of the blue one day with no warning and announce a drought in Europe. There were gradual clues along the way. First in the U.S., then southern Russia and Australia. At each step, the problems didn't seem to reach a level of serious production loss. Then we heard whispers of problems in Europe, but for how long? Eventually, traders caved from skeptical to bullish, and all of a sudden we're reporting 30-cent gains on Wednesday.

Fundamentally, it is difficult to know at what point to call a production threat serious, especially when the changes happen gradually, as they did for wheat. That is where technical analysis can offer help, looking for lines in the sand to show a change in market sentiment.

Technically speaking, Wednesday's new five-week highs in all three U.S. wheat prices were clearly bullish market expressions. And the fact that they coincided with Europe's first close for December milling wheat above 200 euros was another bullish achievement.

Fundamentally speaking, it is just as difficult now to know how long these active weather threats will last as it was earlier this month. However, with both, USDA and IGC pointing to lower ending world wheat stocks in 2018-19, we have to admit the new uptrends in wheat have bullish potential.

Todd Hultman can be reached at Todd.Hultman@dtn.com

Follow him on Twitter @ToddHultman

(BE/BAS)

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