CNS Canada –– All three U.S. futures markets climbed higher over the past week, rising to some of their best levels of the year. There is some more room to the upside, but further gains may be short-lived, according to an analyst.
“Wheat is getting tired,” said Randy Martinson of Progressive Ag at Fargo, N.D. Drought in Kansas was the primary driver taking wheat futures prices higher, he said, with seeding delays for spring wheat in northern-tier states also somewhat supportive.
The Kansas City July wheat contract, now traded in Chicago, ended the week up 40 cents at $8.2175 per bushel (all figures US$). July Minneapolis wheat jumped 25 cents over the week, to settle at $7.75.
Chicago soft wheat is lacking any supportive news of its own, and lagged to the upside gaining only eight cents in the July contract the finish at US$7.16 per bushel.
Citing the rule of averages, Martinson expected the bull-run would come to an end within the next week or two, as rains will eventually hit the dry southern Plains and conditions will stabilize. Even if there is no rain, “the combines will start to roll by the end of May,” making crop conditions less of a concern as well.
In addition, as far as wheat’s concerned “it’s a U.S. issue, it’s not a world issue,” said Martinson, noting that better crop prospects elsewhere in the world should also limit the impact of problems facing the country’s hard red winter wheat crop.
“Once Kansas City loses its bull news, it will pull everything down,” he said. Minneapolis spring wheat futures remain at a discount to Kansas City, but he expected that spread might start to tighten up with the next week and return to more normal levels. As a result, he said buying Minneapolis while selling Kansas City could be a good spread to get into.
However, while the hard red winter wheat crop won’t be large, it will be good quality with high protein levels, said Martinson.
While he expected Minneapolis spring wheat would soon regain its premium over Kansas City, the higher-protein winter wheat will compete more directly with Minneapolis, which should keep the spread between the two markets relatively tight.
— Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.