Traders love to stir up a weather market

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wheat field

One of the oldest axioms in the grain business is that the traders “kill” the crop at least once a year. This is, in fact, a cynical observation about trading wheat and watching price volatility.

Most years, we see volatility in wheat prices, especially in the winter. Usually, there is some reason for them. Sometimes the price action is a head-scratcher.

I was clawing at the noggin a couple of days ago when I saw reports that the rain in the southern Plains was the reason for a one-day rally in wheat prices. Duh? Usually, rain in the historically dry Great Plains is good for wheat and bad for wheat prices.

In fact, the extreme southwest portion of the wheat country of the Plains is actually irrigated ground that grows wheat among other crops and was known to early explorers as the “Staked Plains,” part of the “Great American Desert.” The area gets an annual rainfall ranging from 23 inches in the east to 14 inches in the west, in the high plains of New Mexico.

“Killing the wheat crop” is a Kansas City futures market phenomenon that carries over into Chicago markets. The cynic in me says it happens because there is little news to trade in the middle of winter when winter wheat is the only crop growing (or at least planted), and traders love to stir up a weather market.

Sometimes it is dry conditions, like last year when the talk was that the wheat was not even germinated in the dust, and large acreages would be abandoned. Sometimes it is cold.

A farmer from Ashtabula County, Ohio, would find it hard to understand, coming from an area where the ground often does not even freeze because of snow cover, but every time it gets windy and zero degrees in the Plains, there is talk of winter kill and abandoned acres. There is always talk because sometimes it is true.

Sometime near the end of March, Prospective Planting Report traders find new nuggets of news to trade, and, if we are warming up, the winter kill problem tends to sort itself out.

Some of the problems Plains farmers face are hard for us to understand. Back in the dark ages, my father and I made a marathon trip from Cherry Valley to Mesa, Arizona, on the way to the Rose Bowl. We stopped once to sleep, in Florence, Kansas.

I picked up a newspaper in the restaurant the next morning and read that there were large anticipated losses in cattle herds because of the blizzard. I mentioned to a local that I didn’t understand what a half-inch of snow had to do with a blizzard. He rebuked me for my ignorance (not the first time that has happened).

On the flat Plains, it seems, a half-inch of snow blows sideways until it finds the first low spot. The cattle gather in the low spot for shelter from the wind and get buried in several feet of snow, accumulated over a few miles of flat ground.

Grain prices

Whatever the winter news will be, this week, the news was of a market that got a little squirrely, but mostly stayed put, and in the case of soybeans, dropped below another benchmark number. On Dec. 19, we traded as high as $13.28 3/4 briefly but dropped lower in the next couple of days.

As this was being written Dec. 21, the January soybeans were trading at just $12.98, below the magic $13. We have now traded parts of the last two weeks 10 sessions in the vicinity of $12.98. Now that we have gotten some rain in South America, we have little reason to go higher. That is, unless the fact that the spec traders are adding to soy and soymeal positions, gives us a little help.

We did trade corn almost three cents higher Dec. 18, but the bounce did not last long. We have been in a slow but steady decline for some time. The last pop on the chart was for $5.21 1/2 Oct. 20. We are currently trading back at $4.72 on the March contract.

You would think that our current export news is positive, but we are lower the last few days regardless. We exported just over 1 MMT of corn the week that ended Dec. 14. That makes the seventh week above 1 MMT of corn exported, which gives us 28.2 MMT for the crop year, which started in September. That pace is 37% above the pace last year at this time. I am reminded of the TV commercial — shingles doesn’t care! Neither does the market, I guess. When it takes this much bullish news to just keep prices from collapsing, we have a lot to fear.

Soybeans have a different problem. We are seeing Brazil be the number one source for exports, and this is coming at our expense. We exported almost 2 MMT of beans in the last week for which we have numbers. This is 16.5% behind the pace of last year, and that can’t be good.

The Chicago cookie wheat shows a better picture. We have spent the last 10 sessions getting smaller and smaller trading ranges each day. That is producing what we call a pennant formation on the charts, where we are getting squeezed out of the formation.

In theory, that means the next couple of days can start a move lower or higher. We are due for a breakout, and I hope it is in the up direction. We just posted the largest export week on record for wheat. We shipped 55 million bushels, 75% of that to China.

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