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Potential U.S. winter wheat troubles have been in focus since the crop was planted in dry soils last fall, but the situation has become more urgent as wheat has emerged from dormancy and the forecast for the moisture-starved Plains still lacks substantial rainfall.

The success of the overall U.S. winter wheat crop is heavily tied to the results from Kansas, which grows 25% of the nation's winter wheat and 17% of the total U.S. wheat crop. Hard red winter (HRW) wheat, the top U.S. variety, is grown in Kansas and surrounding states.

Problems with the HRW crop coupled with strongly bearish sentiment in Chicago wheat futures have lifted Kansas City wheat futures to a record premium versus Chicago, well above the previous high.

As of Sunday, only 27% of U.S. winter wheat was considered good or excellent (GE), tied with 1996 for the week's worst-ever rating.

Kansas at 13% GE, down from 16% last week, is similar to the same points in 2018 and 1996, but slightly above the week's low of 8% GE set in 1989. Yields in these comparable years were very poor, but precipitation trends this year are worse.

Statewide, March precipitation was only 30% of normal, the 14th driest of the last 129 years. In southwest and south-central Kansas, which grows 41% of the state's wheat, March precipitation was less than 10% of normal, ranking in the top 10 driest.

This extreme anomaly in the heaviest wheat areas of Kansas is worrisome given how dry it has been. But the most concerning scenario is something like 2014, when the state's yield fell more than a third below trend, likely the worst crop in multiple decades. March 2014 precipitation was 27% of average in Kansas and the trailing six months of precipitation was almost identical to this year.

April-May 2014 was Kansas' fourth driest since 1895 with 52% of normal precipitation. For comparison, precipitation percentages in April-May of 2018 and 1989 were 77% and 65%, respectively.

The dry near-term forecast has Kansas potentially moving toward a 2014 outcome, though it is unclear whether ample May rains, if realized, could lessen the blow. That will depend on how quickly the crop progresses in the next several weeks.

Heat will be prominent in the southern Plains over the next week, but temperatures may have less of an impact. Interestingly, March-May of 2014 was cooler than normal in Kansas.

Huge Spread

On Monday, front-month Kansas City wheat futures settled $1.97-1/2 per bushel above Chicago wheat, a record K.C. premium since at least 1980. That spread has traded above the pre-2023 record every day since March 30.

The previous highest K.C. front-month premium was $1.77-1/4 set May 11, 2011, during the contract's delivery period, but the record outside delivery was $1.63-3/4 per bushel on April 5, 2011.

Unusually high K.C. premiums have persisted for several months in years when the Kansas wheat crop was poor, particularly in 2011 and 2014. Relative to the time of year, K.C. wheat has traded at a record premium to Chicago since November.

K.C. wheat is typically priced above Chicago due to the higher quality of grain it represents, trading about 21 cents per bushel higher on average over the last two decades.

Since mid-March, K.C. wheat futures have risen 7% though CBOT wheat has fallen 3%. Both contracts are considerably below the record year-ago levels spurred on by Russia's February 2022 invasion of Ukraine. Both countries are significant wheat exporters.

Money managers as of last week held a modest net long in K.C. wheat futures and options, and a heavy net short in Chicago, marking the largest disparity in funds' views on the two contracts since April 2018.

Source: Reuters