Welch on Wheat: 21% Rise in Stocks

    Market Situation

    Grain Stocks. All wheat stocks in all positions were reported at 2.527 billion bushels in this morning’s Grain Stocks report from USDA. This number is 21% above a year ago and 25% above the 5-year average. It is also above the average pre-report trade guess of 2.397 billion bushels.

    Small Grains Summary. All wheat production for the 2016/17 marketing year is 2.310 billion bushels, just below the estimate in the September WASDE of 2.321 billion and the pre-report trade estimate of 2.323. Production in 2016 is up 248 million bushels over 2015 even though harvested acres are down from 47.3 million acres to 43.9 (-3.4 million).

    Winter wheat production was 1.672 billion bushels, up 297 million bushels from 2015; spring wheat was 534 million bushels, down 69 million bushels; durum wheat was 104 million bushels, up 20 million bushels.

    Crop Progress. Monday’s Crop Progress from USDA shows 30% of the 2017 winter wheat crop is in the ground, this is the same as the 5-year average.

    The Texas Crop Progress and Condition report notes favorable weather and soil moisture conditions for sowing across the state. The percent of Texas top soils rated as short and very short in topsoil moisture this week is 25%, up from 22% last week. Texas is 65% planted, 64% average.

    Weather. The Crop Moisture Index shows most of the Southern High Plains to be in good shape for the winter wheat crop going in. The next several days are forecast to be mostly dry with rain returning by the middle of next week.

    The ENSO update from the Climate Prediction Center on Monday shows the most recent weekly sea surface temperature observation related to the Oceanic Nino Index is -0.4°C. The greatest likelihood of conditions this fall and winter are now neutral instead of La Nina.

    Grain Use. Despite large wheat stocks held by our export competitors and a strong dollar, U.S. wheat export sales commitments are on pace to reach USDA’s target of 950 million bushels, up from 775 million bushels in 2015/16. Sales for the week of 9/22 were 21 million bushels, above the 12 million bushel pace needed to reach the target. Sales have reached 54% of the marketing year total with one more week to report. The normal level of sales at the end of September is 55% of the marketing year total.

    Wheat inspected for export at the Texas Gulf is still below average for the marketing year (-24%), but is up 58% from levels in 2015/16, the lowest reported in the Grain Transportation report since 1996.

    Grain Commentary

    Unable to display feed at this time.

    Cash wheat prices in the central Texas panhandle still support wheat for feed. On a hundred weight basis, wheat is bid 69 cents below corn or 88% of the corn price.

    Commitment of Traders. The Commitment of Traders report this afternoon showed Managed Money traders still net long soybeans and net short corn and wheat, with increasingly bearish positioning in corn, soybeans, and soft wheat ahead of today’s reports. Only Kansas City wheat was less bearish though still net short. It will be interesting to see if today’s positive price action in corn was more short covering or a move to a more bullish outlook at this late point in the season.

    The spread between new crop December Kansas City wheat and March is 16½ cents today, just below full carry for that 90 day period (3 months x 6 cents per bushel/month = 18 cents). Any percentage of carry above 67% is generally considered to be a bearish commercial market indicator.

    Marketing Strategies

    2017 Wheat Marketing Plan. Including grazing income and my 2016 PLC payment (paid in October of 2017), with average yields and a normal basis, I will need to hedge at about $4.75 on the board to break even on the 2017 wheat crop. I have done no forward pricing at this time.

    Upcoming Reports/Events.
    October 3 – Grain Crushings
    October 11-  Crop Progress; WASDE
    October 13 – Short-term Energy Outlook
    October 21 – Cattle on Feed
    January 8-14 – The Executive Program for Agricultural Producers, information available at here

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