Hot and dry weather forecasts and the impact they may have on future yields are having an impact on not only domestic wheat prices but the world wheat prices as well. All wheat classes showed impressive gains to end the week with Kc wheat leading the charge. The 6 to 10 and 8 to 14 day forecasts show temps in the winter wheat areas between 90 to 100 degrees and mostly void of rain. Drought monitors look to worsen in the affected areas that stretches from Eastern Colorado through most of Kansas, Oklahoma, and Texas. Fear of worsening conditions, increased acreage abandonment, and lower production has prodded funds to buy dips and extend rallies. Its a supply side rally or potential lack there of in this case that continues to drive wheat. Heading into a three day weekend with weather uncertainty made it easy in my view for funds to bid prices into the weekend. Kc July wheat has major resistance between 5.68 and 5.71. A close above and 5.85 is next with a target of 6.08 on the charts. After yesterdays break, to 4.50 basis July Kc wheat, funds bought back overnight and extended today’s rally to settle at 5.64 which was the previous day high.Drought like conditions aren’t just related to the US as dryness and drought like conditions plague the wheat growing areas of Canada, Australia, and the Black Sea. This is one reason why you are not seeing intra-market spreads like KC wheat gain on Chicago or Minneapolis aggressively. If one is looking at further upside in wheat, in lieu of futures look at buying the Chicago 570-600 call spread for 5 cents. I would exit at 15 cents and risk to 2 cents. If KC wheat can rally to 5.85 or even 6.08 next week, look to sell it vs corn at 1.80 Kc over. I would imagine longs take profits at some point prior to the June 12th crop report unless abrupt changes in the weather emerge first.
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