Welch on Wheat: Conditions Decline, Supply and Demand Little Changed

    Market Situation

    USDA Agricultural Outlook Forum. The initial estimate of U.S. wheat supply and demand in the 2014/2015 marketing year is little changed from 2013/2014. A 4% increase in harvested acres and 3% decrease in yield results in a wheat crop that is forecast to be 1% larger than the 2013 crop.

    Use is down in all categories (estimates in million bushels): feed, -60, food, -7, exports, -125. Lower beginning stocks keep projected ending stocks little changed, up from 558 million bushels in the current marketing year to 587 million, a 29 million bushel increase.

    Crop Condition Reports. Today’s Texas wheat crop condition report shows a 3% increase in the very poor category; fair and excellent are down 3%. The crop condition index score lost 8 points this week from 262 to 254. Crop condition reports from Kansas and Oklahoma comparing conditions at the end of December to the end of January show the very poor and poor increasing from 6% to 20% in Kansas and from 8% to 24% in Oklahoma.

    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 calls for amounts of ½ inch or less in most growing areas.

    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.

    Commitment of Traders. Speculative funds added to bullish bets in last Friday’s Commitment of Traders report from the CFTC. Hedge funds added 47,680 net long contracts and index funds 7,950. The price index was up another 17 points.

    The CFTC snapshot of the corn market on February 18th showed hedge funds decreasingly net short, going from -36,672 to -20,777, an increase of 15,895. Carry in the market held steady, offering 60% of the cost of commercial storage from March to May.

    Hedge funds were net long Kansas City Wheat by 15 contracts last week. This wheat market is still 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. Calculating retracement levels from the price move down from 750 to 600, 38.2% was 657, we are at the 50% retracement level of 675, and the 61.8% retracement is 693.

    Upcoming Reports/Events.
    March 28 – Quarterly Hogs and Pigs
    March 31 – Grain Stocks, Prospective Plantings

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