Welch on Wheat: Mixed Market Messages in WASDE

    Market Situation

    WASDE. Mixed wheat market messages in yesterday’s World Agricultural Supply and Demand Estimates: U.S. wheat stocks to use ratio at the end of the new crop 2017/18 marketing year down 10%; world stocks to use went up.

    For the U.S., adjustments to old crop numbers were a 10 million bushel increase in exports that were offset by a 5 million bushel increase in imports and a 5 million bushel decrease in food use. Ending stocks for 2016/17 (beginning stocks for 2017/18) were unchanged at 1.159 billion bushels. The season average farm price for old crop wheat went up 5 cents to $3.90.

    With fewer acres and normal yields, the 2017 wheat crop is projected at 1.820 billion bushels, the smallest wheat crop since 2006. Total wheat supplies are estimated 295 million bushels below last year and use is down 50 million bushels. Ending stocks on May 31, 2018 are forecast at 914 million bushels, down 245 million from 16/17. The season average farm price is $4.25.

    Global wheat production for 2017/18 is down led by smaller crops in the U.S., FSU-12, and Australia. However, the 15.3 mmt reduction in crop size is offset by an increase in beginning stocks of 12.9 mmt and a reduction in use of 5.3 mmt. The ending stock estimate is up 2.9 mmt over last year and days of use on hand at the end of the marketing year up to a 128-day supply.

    Crop Progress. The condition of the U.S. and Texas wheat crops in last Monday’s Crop Progress slipped slightly from the previous week. Notable in the Kansas release was the comment that the effects of the recent snowfall and freezing temperatures were still being assessed.

    For all U.S. winter wheat, the percent rated very poor and poor both increased by 1, the fair declined by 1 and the good by 2, and the excellent category increased by 1. The crop condition index score fell 3 points to 344. The average index for this week of the growing season is 331.

    The Texas crop condition index fell 6 points this week to 328. Very poor was unchanged, poor increased 1%, fair was up 3%, good down 3%, and excellent decreased 1%. The average crop condition index for Texas wheat at this time of year is 287.

    Texas wheat production estimates for 2017 from the National Agricultural Statistics Service are 69 million bushels off of 2.3 million harvested acres. The average yield is projected at 30 bushels per acre. These numbers compare to 89.6 million bushels of production last year from 2.8 million acres and a yield of 32.0 bushels per acre.

    Weather. Drought conditions for the winter wheat producing areas are much improved compared to early March.

    The heaviest precipitation in this area since last Tuesday is over eastern Colorado, northwest Kansas, and the Texas panhandle.

    The forecast calls for dry conditions the next several days, a favorable outlook with much of the Texas crop ready to cut. Light rainfall is back in the forecast for early next week.

    The Oceanic Nino Index is forecast to continue in mostly neutral territory this summer into early fall.

    Commitment of Traders. The Commitment of Traders Report from the CFTC last Friday showed preliminary positioning on the part of money managers ahead of this week’s WASDE report and trader response to the snowstorm and freeze in Kansas in late April. All contracts showed a reduction in short positions as net longs increased.

    Kansas City wheat is the only contract to move back into positive territory for net longs, +294 contracts. But this occurred not because there were more net long contracts held–net longs went down 4,283–but because of a decrease in short positions of 22,193. The initial sharp increase in wheat prices does not appear to have stimulated significant new buying.

    The spread between the July and September Kansas City wheat futures contracts today is 17 cents, above 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. The weather rally last week provided an opportunity to add to pre-harvest sales. My trigger was a move of prices back below the 4-day moving average.

    Lower U.S. ending stocks should provide some support for prices and we still do not know the full extent of crop loss in Kansas. A major price move will likely depend on crop developments outside the U.S. as we account for only about 8% of global production and 15% of world exports.

    Upcoming Reports/Events.
    May 26 – Cattle on Feed
    June 9 – WASDE and Crop Production
    June 23 – Cattle on Feed
    June 29 – Hogs and Pigs
    June 30 – Acreage; Grain Stocks

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