Weather Sparking a Grain Rally?

Adam Pukalo |

Weather is going to be driving the grains markets for the next while. 

Last month I wrote about how we could be near the highs on wheat - click here to read it. 

Turns out the recent highs were made on May 7th. 

The corn market having a decline of over $1/bu at one point this month drove wheat prices lower.

To close out the month, the news of dry spring wheat areas in the U.S., fears of too much rain into the central Plains and hot/dry weather in parts of the Prairies helped support a rally off the lows.

There are 2-4 inches of rain for the central and southern U.S. Plains this week, which could cause winter wheat crop conditions to deteriorate. 

Minneapolis wheat surged last week as the forecast for this week turned hot and dry. 

Spring wheat rated good to excellent as of May 23rd was 45% and poor to very poor was 14%, which is a bullish surprise.

Wheat markets are extremely oversold technically and minor buying support triggered aggressive short covering last week.

We might see wheat markets bounce higher on weather, or with a move up in the corn market.

Weather rallies I often see this time of year as a good opportunity to put in some new crop protection.  

Minneapolis Wheat July Futures - 1 Year

Chart sourced from Market Q


Chicago Wheat July Futures - 1 Year

Chart sourced from Market Q


Kansas City Wheat July Futures - 1 Year

Chart sourced from Market Q



November canola futures hit an intraday high of $769.6/t on May 7th and have declined ever since.

The decline in canola this month can be attributed to much needed rains in the Prairies and follow through selling in the soy markets.

Most farms I talk to right now are assessing how significant the frost damage is going to be for their canola.

Soybeans have been downtrend and there is still a threat of more long liquidation.

Long-term, the soybean market could see continued tightening stocks due to strong usage.

Meal price action is still negative and soybean oil is under negative technical influences.

A drop in palm oil futures plus a collapse in energy prices drove soybean oil sharply lower confirming a significant top may be in place. 

These factors are helping to pressure canola futures lower.

I'm still seeing hedging a portion of canola around $700t a good alternative to forwarding selling.

Canola November Futures - 1 Year 

Chart sourced from Market Q



There has been bullish technical action for corn, but no serious weather threats yet.

Corn went limit up (40 cents/bu) last week as traders see continued strong demand from China.

There were rumors that China was in the market inquiring over possible purchases of U.S. corn.

Talk of extreme oversold condition of the corn market plus sensitivity to the potential tightness for the new crop season on anything less than record high yield potential helped to support as well.

The weekly data release from CFTC showed corn spec traders had reduced their net long by 22,934 contracts through the week ending 5/25.

The managed money long liquidation left the group 268,091 contracts net long, the weakest net long since December 21st.

Commercials reportedly also covered shorts through the week, reducing their net short by 33,625 contracts to 594,313. 

Right now it seems that funds could be looking to add to their position on weakness given the current situation.

This could change if the weather were to improve significantly.  

Corn July Futures - 1 Year 

Chart sourced from Market Q


Canadian Dollar

The Canadian Dollar has been trading sideways for the last month. 

The lack of significant Canadian Dollar strength in an environment that otherwise seemed very supportive may prove concerning...
•    Oil prices are back near their yearly highs (the oil sector represents 11% of the Canadian economy) 
•    Canada’s vaccination program has improved (now has a greater % of adults vaccinated than the US) and 
•    Canada’s largest trading partner has seen economic momentum improve (20% of Canadian GDP can be tied to the US). 
Even if the fundamental argument for the Canadian Dollar remains robust, the fact of the matter is that a lack of technical follow-through leaves the Loonie exposed for potential weakness.

Given the situation in the futures market, whereby traders are the most net-long the Canadian Dollar since November 2009, it may simply be the case that the rally is long in the tooth.

Were it to develop, consolidation, if not weakness, in the CAD-crosses shouldn’t be a surprise moving forward.

Having said all of this, a breakout above 83 cents could leave 90 cents as the next upside. 

Canadian Dollar June Futures - 1 Year 

Chart sourced from Market Q



June cattle remain in a consolidation phase in spite of solid gains in beef prices and a very strong tone for demand.

Cash markets are holding mostly steady near 119.00 and with the huge profit margins from the packers we cannot rule out a firm tone to cash cattle.

Traders continue to believe that consumer demand will drop off after the U.S. long weekend and this is the reason that June is holding a good discount to the cash market.

Export sales last were strong strong, but traders remain nervous that cash markets could drift lower during June as demand takes a hit after the recent strong beef prices.

On June cattle, a close above $118.00 would be a positive development and below $115.00 would be negative. 

Feeder Cattle August Futures - 1 Year 

Chart sourced from Market Q


Live Cattle June Futures - 1 Year 

Chart sourced from Market Q