Wheat market bases: Is it weather again?
by Drew Lerner
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KANSAS CITY — Commodity wheat futures prices seem to be basing while other agricultural markets have pulled back on harvest pressure. The rise in wheat prices may be partially coming from some recent weather issues with rumors of China wheat country being drier than usual while Russia and Ukraine were late planting and the U.S. hard red winter wheat country is still dealing with some dryness.
The Chinese have reported dryness in key wheat production regions this autumn while failing to illustrate just how much of their wheat country is irrigated. The concern for wheat conditions in China rose a bit during the first half of October as producers in China entered their fields for aggressive planting only to find the soil rather dry in some unirrigated areas.
Dryness in October and November is not unusual, but the failings this year may have been in September rainfall. Precipitation was restricted during the month in portions of key wheat producing areas. One of the richest wheat production areas from southern Shaanxi into Shandong was not only reporting poor rainfall in September, but in August as well. It is a small region in east-central China that has been driest, but it is still wheat country, and when the potential threat from dryland fields in that area are added into concerns in Russia, Ukraine, Argentina and the United States, one finds a little support for wheat prices.
The heart of Russia’s winter wheat and rye production region and northern portions of Ukraine were enduring a 10-day period of abundant to excessive rain in mid-September this year while China was experiencing net drying conditions. The situation in Russia and northern Ukraine would not have been as big an issue if it had not rained abundantly in August, as well. The largest reason for slow drying came right after the mid-September rain event when temperatures in late September tumbled well below average.
Soil temperatures in Russia and northern Ukraine’s wheat country dropped below the minimum threshold for seed germination for nearly a week. Conditions did not warm up until early October and when warming finally arrived the surplus moisture situation was still lying out in the fields warranting another period of several days of delayed fieldwork while farmers waited for the soil to firm up.
The situation in Russia and northern Ukraine pushed back the final weeks of planting into October — a time that is normally reserved for plant establishment with dormancy setting in by late month. It is late for planting and crops may not have adequate time to establish as well as they should.
Poor establishment is not a death sentence for wheat production. It just means the crop must be protected by a significant layer of snow when conditions get harsh this winter. Warmer biased temperatures are expected to prevail into late October and that may be just enough time for better crop establishment before this year’s delayed dormancy. World Weather, Inc. believes much of the unplanted crop of a few weeks ago likely has been planted, but it will be vulnerable to weather extremes this winter, warranting a close monitoring.
In the meantime, while conditions were adverse in Russia and Ukraine in late September and early October, it was raining in Russia’s lower Volga River Basin and the U.S.D.A. defined “Southern Region.” These areas have been fighting drought since 2010, and enough rain has fallen recently to support some of the best planting potential seen in years. But this part of Russia’s crop also is being planted late and may not emerge and establish properly prior to winter dormancy. But, it has great potential to do well in the spring.
Some well-timed rainfall occurred in the central U.S. Plains during mid-summer this year. Some of it was heavy and a boost in soil moisture resulted. Late summer weather was then warm and dry again until early September when a 10-day period brought some needed rain to hard red winter wheat country. That rain was perfectly timed with the start of planting. In ensuing weeks, the precipitation across the central Plains became erratic with torrents occurring in a few northeastern Colorado and northwestern Kansas locations while warm temperatures countered much of the rain that fell in other wheat areas in the region.
Today’s soil assessment provides hope for a good production year in 2014. However, similar to Russia, Ukraine and China there is just enough doubt and just enough not-so-great weather and field conditions to support commodity trade prices drifting higher as a little premium is put into daily trade for the wheat “what-ifs.”
Soil moisture deficits remain in the central Plains, and the multi-year drought is not over. Wheat is a grass, however, and it can respond very well from some good timed precipitation events prior to dormancy and early in the spring. World Weather, Inc. believes there is still quite a bit of potential for wheat in the Plains as long as there are a few more precipitation events prior to dormancy.
The late winter and early spring precipitation pattern is looking very wet. As long as winter crops go into winter dormancy relatively well established, the late winter and spring precipitation pattern should be sufficient to bring the crop out of its sleep with huge production potentials. Until then the moisture deficits across the region area still a concern — especially for the commodity trade.
Argentina’s wheat problems also have contributed to recent wheat futures prices firming. Argentina has lost 26.6% of its wheat production for 2013-14, according to recent reports from the nation. That comes on extremely dry conditions in Cordoba, western Santa Fe, Santiago del Estero and neighboring areas. In addition to the drought there was a nasty freeze a few weeks ago that damaged reproducing crops in the north that had somewhat survived the drought.
Today’s wheat conditions are considered more stable. The damage is done and the prospects for the remainder of the reproduction and filling season are good enough to curb the potential for new production cuts.
On flip side of concern for Russia, Ukraine, China and the U.S. crops, there is great news from Australia and Canada. Both countries have reported good production. There were some losses in northeastern Australia crop areas, but the production region is not large enough to have a huge impact on production. While crops were suffering in the northeast, Western Australia finally experienced a good production year after a few poorly performing years.
No one can brag more about their crops this year than the Canadians. Yields across the Prairies were exceptionally high. Many producers recorded their best production ever. Most of that crop is already in storage or being shipped to consuming nations while the Australia crop is just beginning to come off the fields. Most of the commodity trade already has absorbed the good news from Australia and Canada, but these other nations of concern, noted above, will provide the fuel for firmer prices for a while. Be cautious with the information, however. There is just as much potential for large crops from Russia, Ukraine, the United States and China as there is potential for lower production. Do not get caught up in the rumor mill. The odds are good when all comes down to the harvest 2014 production may be a good one, despite the issues recorded here.