The Krampus Countdown

A show of hands: How many of you are familiar with the television cartoon “Futurama”?

One of the themes was the annual Yuletide episode with a maniacal Santa Claus robot terrorizing the residents of earth. Why? Because its programming had developed a bug that put everyone on the naughty list. Everyone except Dr. Zoidberg that is, but you need to watch the show to get this running gag. I’m reminded of this plotline every year as the calendar turns from November to December, bringing with it what I like to call the Krampus Countdown.

Over the course of my career, I’ve been many things including a grain merchandiser at a local cooperative in central Kansas. This was back in the day before the Wheat State thought it was part of the Corn Belt, meaning the focus was on, well, wheat.

Throughout the early part of my life, I took part in growing wheat, then talking about wheat with producers as I dumped their trucks during harvest before finally watching the market nearly every hour of every day. Despite this familiarity with the crop, or more likely because of it, wheat turned out to be the one market that would haunt my dreams at night — literally, waking me up screaming in fear about my position. Yes, wheat can do that to you.

But I’ve learned a lot about the wheat markets over the decades, the little tics (e.g. head fakes) and tricks (e.g. early roll from nearby to deferred contracts in spring wheat) that make the sub-sector so much fun. Among these is the Krampus Countdown, the warning that reminds us to not be long wheat in December. What I mean by this is cash, futures ... anything wheat related. The tendency is for the market to be ruthless to those who ignore the warning, just like the robotic Santa Claus in Futurama.

Do my seasonal studies support the idea of a Krampus Countdown? First, recall seasonal analysis shows us what a market tends to do over the course of a 12-month cycle, generally reflecting changes in supply and demand. When we see a contra-seasonal move, it usually means there has been a change in fundamentals. This can come in the form of adverse weather or adverse trade policies, among other things. Second, given my Kansas background and the fact the U.S. grows more hard red winter wheat (HRW) than any other wheat class, I’ll focus this discussion on the Kansas City HRW market.

For the record, in its Sept. 30 Small Grains Summary, U.S. Department of Agriculture estimated 2024 US production of the various wheat classes to be (and yes, everyone should know my opinion on government estimates at this point):

• HRW approximately 770 million bushels (mb). 
• Hard red spring 503 mb.
• Soft red winter 342 mb.
• Soft white winter 216 mb.
• And four other smaller classes bringing total production to 1.971 billion bushels.

Back to my seasonal study for HRW wheat. I use indexes to show percent change over time, then plot the current market year’s price (green line). I generally use five-year (red line) and 10-year (blue line) indexes, though when looking at long-term investment markets (e.g. U.S. stock indexes) I’ll expand the study out to as much as 30 years. I also use national cash indexes whenever possible (see last month’s article for Farmer’s Hot Line) because national average cash prices can be viewed as the intrinsic value of a market.

As I’ve talked about before, I get a chuckle out of the reality the majority of folks calling themselves “economists” and talking about global grain supply and demand, yet they ignore the intrinsic value of markets, or in economic terms, the intersection of supply and demand lines. But I digress.

My HRW seasonal study shows the National HRW Wheat Index (HWI) tends to post its low weekly close in late August before rallying through the mid-May weekly close. The five-year index shows an average gain of 24% while the 10-year index shows a seasonal rally of 18%. During the 2024-25 wheat marketing year, from June through the following May, the HWI posted a low weekly settlement near $4.6950 (green triangle marker). This projects a high weekly settlement next May between $5.54 (10-year) and $5.82 (five-year). In late November the HWI was calculated near $5.00.

But what about the December timeframe? Both the five-year and 10-year seasonal indexes show the cash HRW market tends to bounce around without going anywhere. This isn’t as dramatic a move as what I remember from my merchandising days, but if a producer were holding cash bushels in a commercial facility, storage fees would continue to erode the value of those bushels.

Could the U.S. cash wheat markets see a stronger than usual December during 2024? Despite weakness heading into the last month of the year, a more bullish December is possible. Why? Recall that I said contra-seasonal moves are usually tied to a change in fundamentals, a category that includes trade policies.

The general assumption is that the U.S. president-elect’s second official duty in January will be to lift all sanctions against Russia. Will this dramatically change global supply and demand? Most likely not, though the long-term ripple effect of handing Ukraine over to Russia will eventually increase global wheat production. While the U.S. has not seen an export demand bump since Russia invaded its neighbor back in February 2022, the reality is it could become less of a player on the global stage over the years to come.

Maybe this will spark a round of December buying of U.S. cash wheat. The weekly export sales and shipments report for the week ending Thursday, Nov. 14 showed the U.S. on pace to ship 780 mb, up 14% from the previous marketing years reported 680 mb. Additionally, total sales (total shipments plus unshipped sales) were reported at 540 mb, up 23% from the same week the previous marketing year.

It will be interesting to watch these numbers change as we move into December, to see if demand remains solid to close out the year, or if the Krampus Countdown takes its toll on U.S. wheat once again.