CHICAGO (B)--For the first time since 1997, conditions have allowed the Kansas City Board of Trade hard red winter wheat March contract to trade at a premium to Minneapolis Grain Exchange hard red spring March wheat.
Just two weeks ago that spread was trading at a 7 1/2-cent-per-bushel premium for the MGE contract, but at present, KCBT March is showing a premium of about 2 cents. The May and July spreads are inverted as well.
Traders said it is hard to place much judgment yet on the inverted spread, due to the low volume in holiday activity. Action in the early part of the new year is being watched closely.
"During one session last week, volume at the MGE was less than 1,000 lots," noted one MGE wheat trader. "You have got to wonder if MGE wheat is trading at its proper level after prices were influenced by just 50-lot orders."
However, once trading resumed Jan. 2 after the New Year's break, the spread continued to run at a premium to the KCBT with no inter-market spreading noted early.
"I don't expect the spread to climb much over 5 to 10 cents in the KCBT's favor, but a lot will depend on the January acreage report to see if winter wheat seedings will be cut as much as the industry expects," commented one MGE wheat trader.
Strength in KCBT wheat has been driven by awareness of reduced hard red winter wheat planting and emergence this fall, as well as recent cold weather worries surrounding wheat in the central and southern Plains.
Lower planted acreage should be confirmed by the U.S. Department of Agriculture after producers, especially in Oklahoma, experienced planting difficulties this fall due to prolonged dryness followed by heavy rain.
As of Dec. 3, the U.S. Department of Agriculture reported that 90% of the Oklahoma HRW crop was planted.
On the other side of the equation, hard red spring wheat is suffering from the winter blues, as the Great Lakes are closed due to the winter season, limiting ways to export grain from the northern Plains.
Also, if prevailing ideas about a global shortage of high-quality milling wheat are still around a few months from now, spring wheat planting in both the United States and Canada might increase.
Wheat analysts said the current spread has a interesting correlation to the 1996-97 season, the last time the spread traded at a KCBT premium. In 2000-01, hard red spring wheat production in the United States was 508.5 million bushels, the largest since that 1996-97 season, while HRW wheat production was the lowest at 843.6 million since that same year.
The difference between the two wheat types was much more severe in 1996-97, when hard red spring wheat prices were pressured from a bumper crop of 631.0 million bushels, a whopping 24% increase from the previous year. At the same time, the hard red winter crop during that season was a mere 759 million bushels.
The KCBT-MGE March wheat spread traded at a premium to the KCBT for an extended period of time during the 1996-97 season.
However, once the hard red winter wheat harvest began the following year, the spread raced back to more normal levels as HRW producers brought in 339 million bushels more than the previous year.