Volatility Ramps Up – June 9, 2017

June 9, 2017

Volatility Ramps Up.

This week had some fireworks in the grain complex. Is it the end of a run or the beginning of something bigger? Minneapolis is rarely the leader of even the wheat complex, much less the broader grain market. But when it is, it means there are serious problems in spring wheat.

 

That problem is the lack of high protein wheat supplies. For those who follow protein content and supplies, this isn’t a surprise. But large fund traders normally don’t follow those details.

 

The last couple of years have been generally low protein spring wheat across much of the northern plains. Last year, hard red winter wheat was a bit on the low-pro side, but old crop was used to blend up. Last year was also a below average protein crop for spring wheat, particularly in Montana. This year, hard red winter was again low-pro but there aren’t old crop supplies to blend. For millers trying to maintain specific quality flour, it’s becoming a scramble to find supplies.

 

Extended dryness and heat across almost the entire spring wheat belt this spring have sounded alarm bells. The prospect of a short spring wheat crop, even if it would have higher protein, was enough to send a wave of fear through the commercial trade.

 

That fear has not become panic just yet, thanks to a forecast calling for widespread rains for the northern plains early next week. Crop-saving rains for sure. There is a strong seasonal tendency for spring wheat to top in early June. Obviously we are in that time window; if the rains come, Minneapolis will likely sell off and could confirm a seasonal high.

 

The rains forecast for the north are expected to move into the Midwest later in the week, giving corn and soybeans a needed drink as well. Rain makes grain, and if they verify as well, we’ll likely see corn and soybeans move lower. But the growing season is still early. July will be critical, particularly since so much corn had to be replanted (twice), and pollination will be pushed further into late July and early August.

 

Around the Northern Hemisphere, we see some dryness issues developing in southern Europe, stretching into Ukraine. Russia so far is looking okay, if anything temps are too cool in the north.

 

China, as we’ve discussed recently, has had drought problems in the North China Plain, threatening to expand into the northeast growing region. They’ve seen some light rains in the plains but not enough to stop the growing dry region. Keeping in mind that China holds 45% of the world’s wheat stocks and corn stocks; any production losses there would have a significant effect on world stocks.

 

Technically, corn broke out of an important trading range both on the daily and weekly charts. The support now becomes the old high of 3.80 on the July futures. If we get much below that, then we’ll likely see corn prices just trade back in that range for the near future. Wheat should see some more pullback as harvest moves along. Look for seasonal lows as the combines move into central Kansas, which will likely be the third week of June.

 

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