Welch on Wheat: USDA’s Changes Small but Bearish

    Market Situation

    WASDE. The supply and demand changes to wheat in the April World Agricultural Supply and Demand Estimates were small, but bearish. U.S. wheat ending stocks are up on a 35 million bushel decrease in feed use. This seems surprising giving how cheap wheat is to other feed grains, but USDA reduced corn feed use by 50 million bushels and sorghum feed use by 10 million bushels.

    Wheat was not spared from the overall decrease in energy feed consumption. The season average farm price estimate for 2016/17 was unchanged at $3.85, which results in a PLC payment of $1.65.

    Global wheat supplies were up mostly on larger carry in stocks. But with a small decrease in total use, ending stocks are higher and the days of use on hand at the end of the marketing year estimate up to 124.

    Crop Progress. The condition of the U.S. and Texas wheat crops showed improvement in this week’s Crop Progress report. For all U.S. winter wheat, good and excellent categories both increased by 1% while poor and fair both declined by 1%. In Texas, the crop condition index is up 5 points to 330 on a 1% decline in very poor, 1% decline in poor, and a 2% increase in good.

    The global wheat condition summary from GEOGLAM shows some concern over recent dryness in the Southern High Plains of the U.S. and some high rainfall impacted areas in southern China. Otherwise, generally favorable conditions are reported with little evidence of winter kill.

    Weather. Last week’s drought monitor showed a reduced degree of intensity for Oklahoma and Kansas. Another round of rainfall is forecast over the next several days with 5-day accumulation totals from Southwest Texas to Southeast Kansas above 2 inches.

    The Oceanic Nino Index continues on a path towards a mild El Nino event next fall after this summer’s neutral conditions.

    Commitment of Traders. Last Friday’s Commitment of Traders Report from the CFTC showed money managers turning bearish on soybeans for the first time in a year, net longs at -4,358. Starting the new quarter and ahead of this week’s WASDE, the other contracts tracked here were bearish as well: corn, -141,759 contracts; Chicago wheat, -147,121; and Kansas City wheat, -7,449. Prices were mixed with corn and Chicago wheat up and KC wheat down slightly but soybeans were down 34 cents.

    Grain Commentary

    Unable to display feed at this time.

    The spread between old crop May and new crop July Kansas City wheat futures contracts today is 13 cents, 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 on the best prices we had seen since last summer. With fewer acres and normal yields, U.S. wheat ending stocks should be some lower by the end of the next marketing year. But major price strength will depend on developments elsewhere with the U.S. accounting for only about 8% of global production and 15% of world exports.

    Upcoming Reports/Events.
    April 21 – Cattle on Feed
    May 1 – Grain Crushings
    May 9 – Short-term Energy Outlook
    May 10 – Crop Production and WASDE

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