Welch on Wheat: Ending Stocks Higher for U.S., World

    Market Situation

    WASDE. Monday’s World Agricultural Supply and Demand Estimates reported higher U.S. and world wheat ending stocks for the 2014/2015 marketing year. U.S. stocks are higher on a decrease in feed and seed use; supply estimates basically unchanged.

    U.S. wheat production has been below consumption every year since 2009. This trend has eroded ending stocks and the stocks to use ratio until this marketing year when imports increased to an all-time record high offsetting the production shortfall.

    World wheat ending stocks increased due to an upward revision in beginning stocks and increased production greater than the small increase in use. USDA lowered the wheat export estimate for Russia from 22 mmt to 20 mmt, but increased exports from Ukraine (+0.7 mmt), Kazakhstan (+0.2 mmt), the EU (+1.0 mmt), and Canada (+0.5 mmt). Estimated days of use on hand at the end of the marketing year increased from a 99.8 day supply last month and 96.1 day supply last year to a 100.3 day supply.

    Grain Stocks. U.S. wheat stocks on December 1 were 1.525 billion bushels, about 3% above last year’s 1.475 billion. Stocks on September 1 were 2% above year ago levels. Both current and year ago stocks are well below the 5-year average.

    Winter Wheat Seedings. U.S. winter wheat acres for 2015 are reported at 40.452 million, down from 42.4 million acres last year (which was right at the average since 2000). Hard red winter wheat acres are estimated at 29.5 million, down from 30.4 in 2014, soft red winter at 7.5 million, down from 8.5 million, and white winter 3.5 million, steady with 3.4 million last year.

    This is the lowest winter wheat acreage since 2010.

    Commitment of Traders. Managed money positions in the grain markets took on a more bearish posture last week ahead of Monday’s slate of reports. Net long positions by index traders and hedge funds were down over 30,000 contracts. Hedge funds were more bearish corn and wheat but soybeans saw a slight increase in net long positions.

    Even though prices have declined over 30 cents since the first of the month, carry in the nearby Kansas City wheat contracts is still in the bullish range (below 33%).

    Marketing Strategies

    2015 Wheat Marketing Plan. As noted in the last several newsletters, I was ready to add to new crop wheat sales taking advantage of this recent price rally, timing that sale with a break in the trend line. That upward trendline was broken on December 31 and confirmed by a sell signal from moving averages (close<4-day ma<9-day ma<18-day ma) a few days later. That brings my level of new crop sales to 40% of anticipated production.

    With a 65% revenue protection crop insurance policy in place, I intend to price at least another 20% this spring. If production prospects look favorable, I am prepared to price up to 80% before harvest.

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