Commentary
Tuesday’s 20 cent break in wheat may have been seen as simply profit taking.as the market took a breather. Today’ session featured an overnight break down in Dec KC wheat , now the most actively traded month moving lower to 716.4. However that break coupled with yesterday’s lower close put the market 52 cents lower than last week’s high of 7.69. Weather forecasts continue to run hot and dry across much of the N Plains and Upper Midwest with forecasts bringing more rains in in the 8-14 day. Rainfall now being seen across the Dakotas and Canadian prairies will only make things worse bringing in potential quality issues to an already short crop as harvest is underway. U.S. Spring wheat on Mondays crop progress report near 60 percent complete, so the growing season is about complete.
Last Thursday’s USDA report had all U.S. winter wheat production was increased by 15 million bushels while spring wheat production was down 41% from last year at 243 million bushels, durum was down 44 million and white wheat was down from last year 70 million bushels. White wheat cash markets are already the wheat complex leader as we approach $10 a bushel, s in my view I suspect that spring wheat may continue to ultimately be the leader of the futures markets. HRW or the KC contract will tag along assuming protein demand strengthens and HRW or KC wheat captures a larger share of world trade than recently projected. SRW or the Chicago Contract wheat looks overvalued to me versus other classes, but that may take a while to play out. KC versus Chicago should ultimately be the trade in my opinion given the global potential shortfall of global Spring wheat production. I attached a chart of December KC/Chicago wheat spread/ KEZ21/ZWZ21. The spread settled today at -14.2 cents KC under.
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