Welch on Wheat: Bigger Crops in Argentina, Australia; U.S. Exports Still on Track

    Market Situation

    WASDE. The March World Agricultural Supply and Demand Estimates showed only minor changes in the U.S. wheat balance sheet: a 10 million bushel decrease in imports. That adjustment lowered the ending stock estimate from 1.139 billion bushels last month to 1.129 billion, still about a six month supply of wheat on hand at the end of the marketing year (a 50% stocks to use ratio).

    The estimated season average farm price was unchanged at $3.85 per bushel which would result in a PLC payment of $1.65.

    World wheat production was up this month on bigger crops in Argentina and Australia. The other notable feature of global supply and demand estimates was an increase in India’s wheat imports. The fourth largest wheat producer in the world has moved from a net wheat exporter the last few years to a net wheat importer.

    Weather. Precipitation over the next 5 days favors the eastern edge of hard red winter wheat production areas, but some coverage is expected in central Kansas and much of western Oklahoma.

    Grain Commentary

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    Grain Use. Wheat export sales continue to be on track to reach USDA’s marketing year target of 1.025 billion bushels, up from 775 million last year. Export inspections out of the Texas Gulf are running about normal after hitting record low levels last year.

    The price comparison for wheat to other grains in the central Texas panhandle has improved, moving from a $1.21 discount to corn 3 months ago to -$0.23 this week.

    Commitment of Traders. The Commitment of Traders report for Tuesday March 7th showed a more bearish outlook on the part of Managed Money traders. The number of long holdings decreased and shorts increased for soybeans and both wheat contracts. In corn, the number of longs were up 8,666 but this was offset by an increase in short contracts of 9,303. Prices were higher from the week before for each contract reflecting carry in the market in the roll from March to May.

    The spread between old crop May and new crop July Kansas City wheat futures contracts is 12 cents today, right at full carry for that 60 day period (2 months x 6 cents per bushel/month = 12 cents). Any percentage of carry above 67% is generally considered to be a bearish commercial market indicator.

    Marketing Strategies

    2017 Wheat Marketing Plan. I priced the first 20% of the 2017 wheat crop at 480. The potential for higher prices exists with fewer acres, dry conditions in some major producing areas, and the threat of freeze damage later this spring if the crop develops early due to warmer weather. But these are also the best wheat prices since last summer. I hope that was the worst sale I make this year.

    Upcoming Reports/Events.
    March 24 – Cattle on Feed
    March 31 – Grain Stocks; Prospective Plantings
    April 3 – Crop Progress
    April 11 – WASDE; Crop Production; Short-Term Energy Outlook

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