Welch on Wheat: Crop Condition Improves Slightly

    Market Situation

    Crop Progress. Tuesday’s report showed a slight increase in the condition of the U.S. wheat crop. The percent rated very poor, poor, and good were unchanged with fair down 1% and excellent up 1%. The national crop condition index score is 270, up from 268 last week. The CCI average for this time of year is 330.

    The Texas wheat crop condition index increased this week as well, up 4 points to 214. Compared to last week the percent rated as very poor and poor are both down 1% and fair and good are both up 1%; excellent was unchanged. Wheat rated as very poor and poor account for 65% of the Texas crop, down from 67% last week.

    Wheat rated as very poor and poor in Kansas increased on the week from 59% to 61%; Oklahoma wheat in very poor and poor condition held steady at 78%. The crop index of Southern Plains wheat is down another 2 points to 212.

    Weather. Heavy rain fell across many of the hardest hit drought areas of Texas over the last several days. Amarillo is within 1¼ inches of normal precipitation for the year; Lubbock and San Angelo are now wetter than normal by 0.39 inches and 0.80 inches.

    The 7-day forecast calls for most of Texas to dry out with rainfall across the northern tier of states and eastern half of the U.S.

    Longer term, models from the Climate Prediction Center continue to forecast an El Nino event later this fall, exceeding a 65% probability. El Nino winters are normally associated with above average precipitation and below average temperatures in the Southern Plains.

    Commitment of Traders. Hedge funds continued to reduce bullish positions according to Friday’s Commitment of Traders report from the CFTC. Managed money hedge funds held 219,297 net long contracts in the grain markets as of May 20th, down from 371,120 net longs on April 1st. Over that same period of time, index funds have added 23,413 to bring their holdings of net long contracts to 744,908, the highest in almost 2 years (772,495 on July 2, 2012).

    The price index was down 25 points this week with July KC -56½; July Chicago wheat -38¾, July corn -29¼, and July soybeans -14 cents.

    The CFTC snapshot of the corn market on May 20th showed a decrease in net longs held by hedge funds of 55,865 contracts. The July to September spread is still inverted with July at a premium of 1¼ to Sep.

    Hedge funds reduced net long holdings in Kansas City Wheat last week by 339 contracts. Carry in the Kansas City Wheat market from July to September was 5¾ cents, 48% of the cost of commercial storage, up from 35% last week.

    Basis levels for Texas corn and wheat are still strong, running above the average of the last 10 years. The corn basis in the concentrated cattle feeding area of the central Texas panhandle is averaging +44 cents per bushel compared to an average of +19. Wheat north of the Canadian is -15 cents compared to an average of -54 cents.

    Marketing Strategies

    2014 Wheat Marketing Plan. I have completed all my pre-harvest pricing for 2014. At current prices, the impact of current hedging decisions for a hypothetical farm [1,000 acres of wheat, 23 bu. APH,-$0.40 basis, 65% revenue protection crop insurance, production expectations of 10 bushels per acre] is an increase of revenue of 4.4% over crop insurance alone ($111,005 versus $106,355).

    Upcoming Reports/Events.
    June 2 – Crop Progress
    June 6 – Employment Situation for May 2014
    June 9 – Crop Progress
    June 10 – Short-term Energy Outlook
    June 11 – WASDE
    June 16 – Crop Progress
    June 17 – Consumer Price Index
    June 20 – Cattle on Feed
    June 23 – Crop Progress
    June 27 – Quarterly Hogs and Pigs report
    June 30 – Crop Progress, Acreage, Grain Stocks

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