Crop Progress. The condition of the U.S. winter wheat crop improved last week as reported in Monday’s Crop Progress. The very poor and poor ratings each fell 1% and fair and good were both up 1%. Wheat rated excellent was unchanged at 8%. The crop condition index score increased 4 points to 341. The average index for this time of year is 328.
In Kansas, the percent of wheat rated very poor was down 2%, the poor down 1%, fair was unchanged, good up 2% and excellent up 1%. The Texas crop condition index fell 3 points this week to 320. Wheat rated poor was up 1% and the excellent category was down 1%.
Though down from the strong ratings last year when the index was 340, we are still well above the average condition score for this late in the Texas wheat crop year of 287.
Weather. Precipitation the last 30 days has been well above normal for wheat growing areas from the northern Texas Panhandle and northern Oklahoma to Nebraska.
Dry conditions have persisted over much of Texas south of the Canadian River where moderate drought conditions are on the increase. Little precipitation is forecast for the Southern High Plains this Memorial Day Weekend but moisture may push up from the south later next week.
The Oceanic Nino Index is forecast to continue in mostly neutral territory this summer into early fall.
Grain Use. With only two reporting weeks left in the current marketing year, all wheat export sales commitments have exceeded the 1.035 billion bushel target set by USDA. Sales for the week of May 18th were 7 million bushels and the total for the year 1.043 billion.
Mexico continues to be the biggest buyer for U.S. wheat accounting for 12% of the total followed by Japan at 10% and the Phillipines at 9%. Despite being the second largest wheat producer in the world, China has purchased 58 million bushels or 6% of the marketing year total.
USDA reports that the expansion of the middle class in China continues to increase the demand for high-protein wheat (China Grain and Feed Annual, USDA, FAS).
Export shipments out of the Texas Gulf are back up to normal for the week and just 6% percent below average for the year.
The wheat basis at the port of Houston has averaged +58 cents for the month of May, up from minus 30 cents back in February and just above the long-term average.
Commitment of Traders. The Commitment of Traders Report from the CFTC yesterday afternoon showed a more bullish outlook on the part of money managers in corn and wheat but a strong move more bearish in soybeans.
Though still net short corn and soft wheat, traders increased long positions and decreased shorts to increase net longs by 27,507 in corn and 9,994 in Chicago wheat.
Kansas City hard red wheat traders are still net long and little changed at -325 for the week. The big move this week was in soybeans where traders were long 15,158 fewer contracts and short an additional 15,295. Prices for the week were higher for corn and wheat, lower for soybeans.
The spread between the July and September Kansas City wheat futures contracts on Friday was 18¼ cents at the close, up about 2 cents from the first of April.
This amount is 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 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 in early May provided an opportunity to add to pre-harvest sales. I am ready to price additional wheat prior to harvest then wrap up sales for the year around harvest.
Depending on the quality of the crop and the cost and availability of storage, there may be an opportunity to capture the carry in the market and a better basis on this year’s wheat crop. This can be accomplished by contracting to deliver grain later in the fall.
If I am still concerned about missing out on the possibility of higher prices later in the year, I can combine contracting with the purchase of call options. If this seems too expensive, consider buying calls and selling calls. This limits the upside potential but lowers the cost of the trade significantly. F
or more on these types of marketing strategies, see “The Minimum Price Contract” and “Using a Bull Call Spread” as part of our Risk Management Curriculum Guide here.
June 9 – WASDE and Crop Production
June 23 – Cattle on Feed
June 29 – Hogs and Pigs
June 30 – Acreage Grain Stocks