Canada Markets

Winter Wheat Futures Spreads May Hint at What's to Come

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The following chart represents the trading activity of commercial traders of hard red winter wheat futures. The red line represents the May/July spread, the black line represents the July/Sept spread and the blue line represents the Sept/Dec spread. All are strengthening, indicating growing concern over the state of the HRW crop. (DTN Graphic by Nick Scalise)

The current global wheat market could be characterized by the balance between global production rebounding from last year's challenging situation while facing the fact that North American production is currently challenged. There is delayed spring planting in the northern growing areas, along with a hard red winter wheat crop that was already rated the lowest on record when it went into dormancy last fall and has since been further beaten down with several nights of frost which has further taken its toll.

Today, the International Grains Council released its April report. In it, global production for 2013/14 was lowered to 680 million metric tonnes from its previous estimate of 683 mmt, although this number still represents a rebound of 25 mmt from its 2012/13 forecast of 655 mmt. Carryout stocks in 2013/14 are forecast to increase by 2 mmt to 181 mmt from the 2012/13 forecast of 179 mmt.

While Canada remains an important player in terms of our supply of exports into global markets, our fortunes are closely tied to the success and failures of other producing regions of the world. The one crop currently fighting to thrive against many odds is the U.S. hard red winter crop. To get a feel for the size of the crop and the role it may play in determining North American wheat prices, the 2012/13 projections from the most recent WASDE report (World Agriculture Supply and Demand Estimates) shows total wheat production at 2.269 billion bushels, or 61.8 mmt, of which HRW accounted for 44.2% which is 1.004 billion bushels or 27.3 mmt. It's important to note that this is not only the driving market for winter wheat, but here in Canada, is the price discovery tool for the Canada Prairie Spring class, or CPS wheat.

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Despite falling crop ratings, HRW prices have been slow to respond to the news, although did show market leadership in today's trade with gains between 19 and 24 3/4 cents. The attached spread chart shows signs of growing bullishness, which is ultimately driven by commercial trading activity in forward positions. The red line represents the May/July spread, which is an old-crop/new-crop spread. This spread has rallied for almost three months after reaching a low of minus 8 3/4 cents in the week of January 28. So far this week, the spread has gained 6 3/4 cents to close at a 2 1/4-cent inverse in today's market (May above the July).

Later spreads are also showing signs of bullishness. The July/September spread (black line) has gained 3 3/4 cents since late February after reaching a low of minus 14 cents, closing today at minus 10 3/4 cents. The blue line represents the September/December spread, which has strengthened from its low of minus 17 1/2 in early April to its close today of minus 15 1/4 cents. Resistance may be found at a recent high of minus 14 3/4 cents, which has been tested periodically since February.

Keeping in mind that they say the wheat crop has nine lives and we really don't know how many have been used to date, it will be the commercial side of the industry that will be the first to react. Moving forward, weekly Crop Progress data and the movement in these spreads will signal just how the market is reacting to the available news.

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Cliff Jamieson can be reached at


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