FarmLead: Wheat prices and weather

By: 
Brennan Turner
President & CEO FarmLead

Here on the other side of the Atlantic, cash wheat prices across the U.S. have improved as markets pull off the harvest lows. Managed money last week got a bit more bullish in the futures market as fund managers were net buyers, leaving them in a net short position of nearly 108,600 lots as of Nov. 17th. In the U.S., the stronger basis is making the front-month futures contract and those at later dates start to converge. Also potentially moving markets is soft wheat acreage estimate in Europe dropping a bit to 58 million in 2018/19.
Translation: farmers who have not been able to capture the carry for premiums for deferred delivery are losing their window of opportunity. This includes new crop (or 2018/19 crop), which has seen some decent prices. As the futures and cash markets start to close the gap, those deferred movements and new crop premiums will be lost. In this tight margin environment, we’re in, hitting singles for both old and new-crop sales is a smart play.
Speaking more broadly, those who​ are looking for a La Nina weather system to make a substantial impact on crop production this year may be disappointed. The NOAA says that La Nina is underway and will likely last through the winter, but that’s about it. However, it will happen during South America’s main growing season, meaning it could be a catalyst for better grain prices.
The Weather Network gave perhaps one of the best analogies of what to expect if a La Nina event truly develops:
“When a star player is the starting pitcher, quarterback or goalie for your favorite team, the potential for a particular outcome (a win) is much higher when that player participates versus when they are sitting on the bench. However, no two games are alike, and having a star player on your team does not guarantee the same outcome every time. There are many other factors (players) that determine the final outcome.”
Although the quote above suggests that one should not expect the usual weather patterns, a typical La Nina event in North America calls for some below-average temperatures in the Northern Plains. Higher-than-usual precipitation tends to hit the northern states but does reach down into parts of the Corn Belt. Southern states should expect some above-average temperatures with some below-average precipitation (another way of saying: it’ll be a bit drier).
As mentioned above, South American weather is driving grain markets. Hopefully snow falls in the areas that need it most—namely southern regions of Western Canada and the Northern Plains. Without some wet weather in those areas over the next couple months, the spring 2018 weather might be the most significant variable affecting grain prices.
Brennan Turner hails from Foam Lake, Saskatcehwan, where his family started farming the land in the early 1900s. After graduating with an economics degree from Yale University, Brennan played professional hockey and worked as a Commodity Analyst on Wall Street before starting FarmLead.com. This past year, Brennan was named to FastCompany’s list of Most Creative People in Business while FarmLead was named by Forbes as one of the most innovative companies in agriculture.

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