2 Good Chances to Buy Wheat

05/06/2011 9:00 am EST


Factors are at play that could send wheat futures surging higher, and two upcoming events in particular may represent the best times to buy in.

Last year saw wheat rally from $4 in the spring to more than $8 per bushel late last summer.

Those prices have not been seen since the historic highs of 2008. Adverse weather conditions have affected wheat from Canada to Europe. Canada saw record rains cut planting by 17%. Australia and the European Union countries of France, Germany, and others suffered extreme drought.

The clincher was a severe drought that affected major producing and exporting provinces in Russia and Ukraine. It became clear in August that their crops were so poor that they would suspend exports for the new crop season.

Wheat then surged its final $1.80 to reach the year’s high. The worst was over, and the trade began to sell their futures. They cashed in on the disaster and waited for the new crop year in 2011.

However, La Nina continues to rear her ugly head abroad, with talk of dry preseason weather in and around key European producer/exporters, including China in the mix. Canada currently sees endless rain with frigid temperatures, not allowing a timely spring wheat planting.

But all eyes are on the US, the largest producer/exporter of wheat in the world and first to harvest a new 2011 crop.

Ten percent of the spring wheat crop is planted, versus the ten-year average of 45%. It’s the lowest planted number on record. Heavy rains and nightly temperatures in the 30’s prevent seeding in the upper planes. Final acreage numbers are expected to decline. This year is one of the worst crops in 20 years.

The winter wheat crop’s ratings in good-to-excellent condition:
• Currently - 34%
• Year ago - 68%
• Ten-year average - 50%

A Look Ahead

Key producers Texas, Oklahoma, Kansas, and Colorado are 21% good-to-excellent or lower. This sets us up for two potential rallies. The first comes early next week, as traders buy long ahead of a USDA monthly crop report, which includes winter wheat production numbers.

Traders will expect a sharply lower production number, possibly pulling May wheat futures back to $8 into and after the report.

The second rally comes at the end of May, when we’re set up for a sharp and possibly dramatic rally as the market accepts the winter crop demise and lower spring wheat acreage.

By Tim Hannagan, senior grain analyst, PFGBEST
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