Moving into the spring, hard red winter wheat prices tend to experience heightened volatility. Over the last decade, the July KC HRW contract in April, May and June averaged returns of 8%, 1.5% and –34%, respectively.
Over the year, each month experienced substantial variability. Rallies exploded and faded, underscoring the volatile nature of HRW futures as the crop comes to completion. Winter wheat crop speculation encompasses a considerable proportion of this activity in futures prices but not all of it. Developments with spring crops and outside markets affect movements as well.
This year’s winter wheat crop saw dry conditions during dormancy. USDA’s estimates using the U.S. Drought Monitor had 55% of intended winter wheat acres experiencing a level of drought through early March. Dryness encompassed both the Southern Plains and the soft red winter wheat acreage in the Ohio River Valley. March rains provided a marginal amount of relief to some areas.
The winter wheat crop outcome, in terms of acreage and yield, remains uncertain and dependent on spring weather. An expectation of price movements around weekly conditions and weather forecasts should be monitored for marketing opportunities. Wheat demand remains stable with very few surprises as exports and domestic usage is tracking with USDA’s forecast. Although the potential for a significant rally above recent ranges in the July contract is possible, the upside may be limited by other markets.
Geopolitical and trade issues seem unlikely to dissipate any time soon. These issues provide the potential for shocks that go beyond the typical issues related to spring crop activity.
Corn update
On a positive note, biofuel policy appears set to be supportive of soybean prices, and corn demand remains strong. Large supplies and export competition may limit price upside. The acreage potential for major spring crops matters as well.
Although the Prospective Plantings report provided an initial estimate for spring crop acres, it is common for USDA to see changes.
For example, USDA has consistently underestimated corn acreage in the March survey over the last five years. Over that period, final corn acreage averaged 1.48 million acres more than the March report indicated. The variation has been quite high as USDA has underestimated by 3.5 million, 2.6 million and 1.7 million acres on separate occasions. Only in 2022, by 1.3 million acres, did the March report exceed the final acreage and corn prevented planting acres, totaling 3.15 million acres in that year.
Barring a change in the supply and demand situation for major U.S. field crops, hard red winter wheat spring rallies due to weather issues should be rewarded unless the crop appears set for major downward revisions. It is important to develop target cash prices that would induce sales of the new crop and ensure profitability.