Chicago wheat retreats on prospects for US rainfall and crude oil slump

Chicago wheat futures posted the biggest intraday drop in almost two weeks, falling amid forecasts for rainfall in the US and in line with a slide in energy prices. The most active wheat contract, for July, fell as much as 1.8%, the biggest intraday drop since April 17.

Wheat prices had risen as much as 14% since the start of the Middle East war, which triggered a surge in energy and fertilizer prices. And futures rose sharply this week, to the highest since in almost two years, as drought conditions across key US growing regions threatened crops. But the prospect for some rainfall flagged by the US Department of Agriculture tempered prices on Thursday. Some relief came today from morning rains in the central and southern High Plains, USDA said, while on a national level southern rainfalls are seen gradually expanding before shifting eastward on Saturday.

“The prospect of rainfall arriving in the coming days is allowing the situation to ease somewhat after the sharp price rise observed since the start of the week,” Argus analysts said in a note. Earlier, wheat and corn prices had extended gains following an Axios report that US President Donald Trump will be briefed on new military options for action in Iran. This pushed Brent crude to a four-year high, before reversing those gains and dropping sharply. Wheat, along with other grains and oilseeds, often moves in sympathy with oil prices, as higher energy costs impact farming inputs including fuel, fertilizers and transport costs.

“Today’s pullback looks mostly like profit-taking after a sharp month-end rally,” said Andrey Sizov, head of consultancy Sovecon. “Some pause is hardly surprising.” Still, “US weather stress, Southern Hemisphere crop risks including a very dry outlook in Brazil during key stages for corn, and high diesel and fertilizer costs — remain in place and may still not be fully priced in,” Sizov added.

Tags: prices, wheat