A MASSIVE spring blizzard has devastated wheat crops in the US Midwest and causing the biggest daily price rises in certain categories of wheat futures for three years.
Parts of Kansas and Oklahoma received up to 30 centimetres of snow in one of the worst spring blizzards in the region in recent memory.
Analysts have said they will need to get in the field to fully assess the damage, but early estimates of damage are as high as 2.7 million tonnes of lost wheat production.
The American winter wheat crop is further advanced than usual this year, with over a quarter of the crop in head as of April 23 as opposed to an average figure around 17 per cent, according to US Department of Agriculture (USDA) data.
This exacerbates the problem, as more of the wheat crop was at a vulnerable stage when the snow storm hit.
Futures markets have reacted swiftly.
The Kansas City winter red wheat futures near term contract (July) kicked up US29.75 cents a bushel, just 0.25c/bu below the daily trading limit immediately after the storm.
It is currently sitting at US470c/bu, its highest level since early March.
The daily rise was the highest since the Kansas City futures exchange was taken over by the CME Group in 2014.
Chicago July wheat futures also spiked, up US18c/bu and now sit at US459c/bu.
Commonwealth Bank commodity analyst Tobin Gorey said the activity on the markets had been caused by the hit to Midwest US production but also by technical factors.
“The funds have had a record short position and part of this rally was due to these investors exiting their positions.”
He said the blizzard had the potential to be the fundamental news required to rebalance the wheat market and push prices up.
“We were predicting a slow rise in prices due to low US plantings but this event, where the average for early estimates of the damage appears to be around 1.35mt, means the US will eat into its inventory a lot quicker than expected.”
“US wheat crop plantings were already the lowest in 100 years in some categories which is understandable given the prices, but this event may mean things change around faster if the damage is confirmed to be as bad as some are saying.”
Crops in western Kansas, the largest wheat producing state in the US, were especially hard hit.
Justin Gilpin, chief executive of the Kansas Wheat Commission, tweeted ‘we lost the western Kansas wheat crop on the weekend’.
The industry is most concerned about stem breakage due to heavy loads of snow on crops in head.
Freeze damage may also be a problem, although the blizzard formed gradually, not with a sudden cold snap that causes most damage to wheat crops in spring.
Mr Gorey said the location of the storm, over states such as Kansas, Oklahoma, Nebraska and Colorado means it will be of biggest importance in the hard wheat categories, as these states all primarily produce hard red winter wheat. The four states produced almost half of the US winter wheat crop last year according to the USDA.
“Given Australia’s old crop had a higher percentage of softer-type wheat the storm is likely to be a bigger factor for new crop sales,” Mr Gorey said.
Charlie Brown, origination manager at AWB, said the storm had been severe, but said it would take time to assess the true amount of damage.
“It was pretty dramatic and Twitter is over-run with photos showing damaged crops, but as with all these weather events you can’t make a call straight away.”
He said the US storm was likely to be a bigger story for Australian new crop.
“The old crop story is probably driven more by the good break many areas of Australia have seen, which will mean farmers are more comfortable marketing their remaining old crop.”
In terms of new crop, Mr Brown agreed technical moves from the funds would influence the market in the short term.
“There has been a record short position from the funds and as they digest this latest news that is likely to change.”
However, he said while the news was positive for pricing, the world still had plenty of wheat reserves.
“Based on recent figures, Ukraine can still move wheat to Indonesia at $15/t below Australian prices, so there is a cap on the upside.
Mr Gorey said he felt there was some room for further upside in the near term.
“Prices now look too low and the market remains short, with investors having huge short positions, which they no longer have a rationale for, so they will be buyers.”
“Wheat prices have been the lowest of all the major crop types and are still at very low levels so there is definitely room for further upside.”
Market monitors have reported US hedge funds had previously been on a short selling campaign across all agricultural commodities only exceeded once before.
Gregor Heard
Gregor Heard is ACM's national grains industry reporter, based in Horsham, Victoria. He has a wealth of knowledge surrounding the cropping sector through his 15 years in the role. Prior to that he was with the Fairfax network as a reporter with Stock & Land. Some of the major issues he has reported on during his time with the company include the deregulation of the export wheat market, the introduction of genetically modified crops and the fight to protect growers better from grain trader insolvencies. Still involved with the family farm he is passionate about rural Australia and its people and hopes to use his role to act as an advocate for those involved in the grain sector.
Gregor Heard is ACM's national grains industry reporter, based in Horsham, Victoria. He has a wealth of knowledge surrounding the cropping sector through his 15 years in the role. Prior to that he was with the Fairfax network as a reporter with Stock & Land. Some of the major issues he has reported on during his time with the company include the deregulation of the export wheat market, the introduction of genetically modified crops and the fight to protect growers better from grain trader insolvencies. Still involved with the family farm he is passionate about rural Australia and its people and hopes to use his role to act as an advocate for those involved in the grain sector.
