Welch On Wheat: Export Sales On Track

The U.S. spring wheat crop condition index gained 3 points this week to 276: very poor decreased 1, poor increased 1, fair was down 1, and excellent was up 1. The average index rating for the U.S. spring wheat crop at this point in the season is 375.

South Dakota spring wheat rated very poor and poor held steady at 75%, Montana 65% in those same categories (+2%), and North Dakota at 39% (+1%). Spring wheat harvested this week is 58%, just ahead of the five-year average of 51%.

Weather

Persistent drought conditions remain over much of the Northern High Plains. The portions of Iowa rated as extreme drought held about steady this week with some relief in the western part of the state. That improvement was seen in Nebraska as well where the area in severe drought fell to 0.

The five-day precipitation outlook is dominated by the effects of Hurricane Harvey in the south. Otherwise, general rainfall is forecast from the High Plains eastward, heaviest in the northern and eastern Corn Belt. The temperature outlook for the next week calls for cooler than normal temperatures in the south and eastern Corn Belt, warmer than normal conditions in the western corn growing regions.

The Oceanic Nino Index from the Climate Prediction Center continues to forecast mostly neutral conditions with a dip towards a weak La Nina in early winter. This week’s temperature deviation reading was -0.5° C from normal.

The latest ENSO wrap-up from the Australian Bureau of Meteorology calls for a neutral ENSO outlook as well.

The development of La Nina conditions in late fall would normally be favorable for Australian wheat growing conditions, with an increase in precipitation as the crop is heading and maturing in September-October.

The U.S. seasonal weather outlook, which combines long-term trends, soil moisture, and ENSO, shows warmer than normal temperatures across the U.S. in September/October/November with above normal precipitation from Texas across the southeast.

Grain Use

All wheat export sales for the week of August 17 were 14 million bushels right at the pace needed to reach USDA’s marketing year target of 975 million bushels. Mexico continues as the top importer for the season but leading sales commitments for the week were Taiwan, the Philippines, Thailand, and China.

Commitment of Traders

Money managers were generally more bearish in their holdings this week, the exception Minneapolis spring wheat. For the other contracts, there was little change on the long side of the market but relatively large increases in short contracts held. The only contract with a positive price change was soybeans, up 12 cents.

The basis for Texas wheat continues to run weaker than normal, an indicator that supplies are more than adequate given the current level of demand. For the week of August 24, the average Texas cash wheat basis is -57 cents and the basis for wheat delivered to the Texas Gulf is +28 cents. The average basis for cash wheat at the elevator in August is -44 cents and the average basis at the gulf is +60 cents.

2018 Wheat Marketing Plan

We are in the price discovery period when RMA sets the base price for most 2018 winter wheat products. At current futures prices in the July 2018 Kansas City wheat contract, the base price is above last year but still in the lower ranges of the last 10 years.

I am 20% priced on the 2018 crop and expect to add to that total when we get a better handle on acres and yield prospects.