Welch on Wheat: Few Changes to Wheat Balance Sheets

    Market Situation

    WASDE. USDA made very few changes to supply and demand wheat balance sheets in Monday’s World Agricultural Supply and Demand Estimates. The only change in the U.S. situation was a nickel increase in the estimated season average farm price, from $6.80 last month to $6.85.

    World wheat supplies were increased slightly with beginning stocks up 0.08 mmt and production up 0.83 mmt. Domestic use increased 0.83 mmt as well raising ending stocks 0.08 mmt. Estimated days of use on hand at the end of the marketing year decreased from a 95.26 day supply to 95.19. This is just above the 10-year average of a 91-day supply of wheat.

    Crop Condition Reports. Texas wheat crop conditions improved considerably in this week’s Crop Progress report. Very poor and poor conditions decreased 15% raising the crop condition index to 290 points, up from 254 last week.

    For Kansas, wheat crop conditions on March 9 showed 18% of the crop in very poor or poor condition compared with 22% on March 2nd. The percent of wheat in Oklahoma rated as very poor and poor was unchanged at 31%.

    Weather. Today’s U.S. drought monitor continues to show much of the southern and western winter wheat growing regions 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. There is a 50% chance of a return of El Nino this fall.

    Commitment of Traders. Speculative funds continued to add to bullish ahead of this week’s WASDE report. Last Friday’s Commitment of Traders report from the CFTC for positions held as of March 4th showed hedge funds added 73,241 net long contracts compared to the week before; index funds increased net longs by 14,291 contracts. The price index was up 24 points.

    The CFTC snapshot of the corn market on March 4th showed hedge funds increasingly net long. Carry in the market declined slightly, offering 40% of the cost of commercial storage from March to May, down from 55% last week. Still in the neutral zone (33%-67%), but a bullish trend.

    Hedge funds were net long Kansas City Wheat by 7,413 contracts last week. The Kansas City Wheat market was once again inverted with the May contract higher than the July.

    Marketing Strategies

    2014 Wheat Marketing Plan. The turmoil in Eastern Europe is combining with weather concerns to give a significant boost to the wheat market. We are entering the time period when I will price another 20% of 2014 production. The Moving Average Convergence Divergence turned negative this week generating a sell signal. We have retraced prices back to the 7.50 level of last October. I prefer to sell into an up market than price grain in a downtrend. I decided to sell another 20% of 2014 production on today’s close of 7.31½. With only 40% priced, I hope I am wrong and that we continue to see higher prices from here to harvest.

    Upcoming Reports/Events.

    March 21 – Cattle on Feed
    March 28 – Quarterly Hogs and Pigs
    March 31 – Grain Stocks, Prospective Plantings
    April 9 – WASDE

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