Killers of the flour move

July KC wheat futures gained $1.75/bushel (30%) from April 18 to May 28. The rally started with dry adverse conditions in U.S. wheat country as well as Russia and kicked into high gear when a late frost hit several key Russian production areas.

Since May 28 the July KC wheat contract has dropped $1.66/bushel from the highs of $7.46, back to $5.80 last Friday, which is very close to where the rally started from on April 18. Commodities are notorious for “taking the stairs up and the elevator down,” but even the most grizzled, veteran wheat traders are suffering from whiplash after this last two months.

In a tale as old as time, prices have come down as “better than expected” becomes a common phrase uttered by U.S. wheat farmers as harvest moves across Central Kansas and a similar story appears to be brewing in Russia. The bulk of Russian wheat harvest is still ahead, but there has been more than one report “walking back” initial loss estimates and worst-case scenarios due to the late frost.

Why the big back and forth move in price if this is a common story that has happened before? Timing. The majority of U.S. hard red wheat country has been suffering drought conditions with below average harvests for the last two years, making it easier to be pessimistic.

Combine that with the fact that wheat prices exploded higher two years ago when the Russia-Ukraine conflict first began. (A conflict that is still going even though it doesn’t seem to be much of a factor in wheat prices). Markets have as short or long a memory as the participants who trade them. Big moves leave big impressions, especially if the participant is on the losing end as the bears have been in recent years.

Unfortunately for the wheat bulls, this last couple of months will likely leave the biggest impression on them and probably reduce the chances of a big rally in the near future, unless there is a real problem.