Friday, May 16, 2014
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Welch on Wheat: Conditions Continue Decline as Key Areas Miss Rains

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Market Situation

Crop Progress. Monday’s report showed the continued decline in the condition of the U.S. wheat crop. The percent rated very poor increased 3%, poor was up 1%, fair -3%, good -1%, and excellent unchanged; 42% of the U.S. wheat crop is in very poor or poor condition. The national crop condition index score is 273, down from 281 last week. The average for this time of year is 334.

The Texas wheat crop condition index fell 10 points this week, down to 209 from 219. Compared to last week the percent rated as very poor is up 4, poor is unchanged, fair is down 2, and good is down 2. Excellent was unchanged at 1%. Wheat rated as very poor and poor account for 68% of the Texas crop, up from 64% last week.

Wheat rated as very poor and poor in Kansas increased on the week from 47% to 56%; Oklahoma wheat in very poor and poor condition is 75% this week, up from 73% last week. The crop index of Southern Plains wheat is down another 14 points to 220.



Weather. Rainfall continues to miss the driest portions of the Southern High Plains.

The 7-day forecast calls for amounts in excess of ½ inch for most of Kansas, in time to still do some good with only half the crop headed (46% as of last Sunday).

Much lighter amounts are predicted for Oklahoma and Texas.

Longer term, models from the Climate Prediction Center continue to forecast an El Nino event later this fall, exceeding a 65% probability.

El Nino winters are normally associated with above average precipitation and below average temperatures in the Southern Plains. Since 1973, Texas average wheat yields are 6.6% above trendline following El Nino winters.

Commitment of Traders. Hedge funds reduced bullish positions by another 14,000 contracts this week according to this afternoon’s Commitment of Traders report from the CFTC.

For positions as of Tuesday May 13th, index funds added a modest 541 net longs.

The price index was down about 3 points this week with July KC -20; July Chicago wheat -30, and July corn -15. July soybeans were up week to week 24 cents.

The CFTC snapshot of the corn market on May 13th showed hedge funds decreasing net long positions by 5,933 contracts.

The July to September spread is still inverted with July at a premium of 6¼ to Sep.

Hedge funds reduced net long holdings in Kansas City Wheat last week by 4,476 contracts

Carry in the Kansas City Wheat market from July to September was 4¼ cents for a neutral 35% of the cost of commercial storage.

The Texas corn and wheat basis is still strong, running above the average of the last 10 years.

The corn basis in the concentrated cattle feeding area of the central Texas panhandle is averaging +44 cents per bushel compared to an average of +19. Wheat north of the Canadian is -13 cents compared to an average of -54 cents.

Marketing Strategies

2014 Wheat Marketing Plan. I priced the final 20% of insured wheat production for 2014 on Wednesday when the closing price of the July contract fell below the 4-day and 9-day moving averages. I priced the first 20% of 2015 production the next day on the same technical signals in that contract.

On today’s close, the impact of current hedging decisions for a hypothetical farm [1,000 acres of wheat, 23 bu. APH,-$0.40 basis, 65% revenue protection crop insurance, production expectations of 10 bushels per acre] is revenue of $111,020. This compares to revenue of $110,795 from crop insurance alone or $72,775 with no risk management strategy in place.

Upcoming Reports/Events.

May 19 – Crop Progress
May 27 – Crop Progress
June 2 – Crop Progress
June 9 – Crop Progress
June 10 – Short-term Energy Outlook
June 11 – WASDE
June 16 – Crop Progress
June 20 – Cattle on Feed
June 23 – Crop Progress
June 30 – Crop Progress, Acreage, Grain Stocks

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