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Grain Prices Rally on Spring Weather Concerns

Wednesday, May 3, 2017

Today's Spotlight Market

A spring storm that brought cold and snow to parts of the Plains, could cause analysts to lower their estimates for Hard Red Winter (HRW) Wheat production this season. Some early estimates are looking for potential production losses of near 100 million bushels although actual production losses will not be known until harvest. Traders will be paying particular attention to reports from the Wheat Quality Council's Kansas crop tour which starts this week for on the ground reports on how the Wheat crop is fairing in the largest HRW Wheat production state.

Fundamentals

Grain prices got a boost to start the week, as below normal spring temperatures combined with strong weekend storms in the Plains and Corn Belt are expected to slow Corn and Soybean plantings. In addition, a spring snow storm in the Central Plains with heavy snow and strong winds may have caused irreversible damage to a small portion of the Winter Wheat crop. While it is still too early to know the extent of any damage to the Wheat crop and there is still plenty of time for producers to get back in the fields to continue their Corn and Soybean plantings should we see drier weather conditions in the next several days, the market's reaction to any potential issues may be magnified by the large net-short positions being held by large commodity funds. The short position in Chicago Wheat futures is particularly large, standing at a net-short 143,292 contracts as of the most recent Commitment of Trader's report. While commodity funds are also largely net-short both Corn (net-short 123,048 contracts) and Soybeans (net-short 38,371 contracts), Wheat futures have the best potential to see an increase in price volatility should conditions warrant the covering of this historically large speculative short position.

Technical Notes

Looking at the daily chart for July Chicago Wheat futures, we see prices running into resistance near the 455.00 to 460.00 price area following a nearly 30-cent rally from last weeks close due to crop damage concerns following strong storms over the weekend. Prices were already holding above the 20-day moving average but have just recently moved above the longer-term 200-day moving average for the first time since early March. The 14-day RSI has strengthened but remains below overbought levels with a current reading of 63.29. Tuesday's high of 461.50 looks to be the next resistance level for the July futures, with support seen at the 20-day moving average, currently near the 436.50 price level.

Mike Zarembski, Senior Commodity Analyst