Welch on Wheat: Wheat Stocks Lowered by 50M Bushels

    Market Situation

    WASDE. Estimated stocks of U.S. wheat at the end of the 2013/2014 marketing year were tightened in Monday’s World Agricultural Supply and Demand Estimates. USDA raised wheat imports by 10 million bushels increasing supply but a 10 million bushel increase in feed use and a 50 million bushel increase in exports resulted in a net stocks decrease of 50 million bushels.

    This is the fourth consecutive year of lower U.S. wheat stocks with the current estimate of 558 million bushels the lowest since 306 million bushels in 2007/2008.

    World wheat stocks were reduced as well. Lower beginning stocks (-0.3 mmt) and lower production (-0.8 mmt) combined with an increase in use (+0.6 mmt) to lower ending stocks by 1.7 mmt.

    As measured by days of use on hand at the end of the marketing year, world wheat supplies are estimated at 95.26 days, down from 96.21 in January but still above the 10-year average of 91 days.

    Crop Condition Reports. Monday’s Texas wheat crop condition report shows a 2% decrease in the very poor category, a 2% increase in the poor, a 1% increase in the fair, and a 1% decrease in the wheat rated as good. The crop condition index score gained 1 point from 266 last week to 267.

    Weather. Much of the southern and western winter wheat growing regions remain in severe drought or worse.

    The precipitation forecast for the next 5 to 7 days does not offer much hope of relief.

    Longer term, the ENSO outlook calls for neutral conditions this spring as the three month average sea surface temperatures in the equatorial Pacific are expected to remain in the neutral zone. However, forecast models increasingly lean toward the development of El Nino this summer and fall.

    Commitment of Traders. Ahead of Monday’s supply and demand updates, hedge funds reduced bearish bets by 89,436 contracts; +21,000 in soybeans and +60,000 in corn. Overall, hedge funds were still net short grain 49,569. Index funds lowered net longs by 4,286 contracts. The price index was up 21 points.

    The CFTC snapshot of the corn market on February 4th showed hedge funds decreasingly net short, going from -133,067 to -72,584, an increase of 60,483. Carry in the market held steady, offering 60% of the cost of commercial storage from March to May.

    Hedge funds decreased bearish bets in Kansas City Wheat by 1,457 contracts last week. This wheat market is inverted, a bullish commercial market indicator, with the nearby March contract trading at a premium to the May.

    Marketing Strategies

    2014 Wheat Marketing Plan. Weather concerns are providing some degree of support for the wheat market. We are entering the time period when I will price another 20% of 2014 production on a technical signal that the uptrend is over.

    Upcoming Reports/Events.

    February 20-21. USDA Agriculture Outlook Forum, Arlington, VA

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