Welch on Wheat: USDA Forecasts 3M Bushel Increase in Ending Stocks

    Market Situation

    WASDE: A 0.8 bushel per acre increase in the 2014/15 wheat yield raised the U.S. wheat production estimate in Tuesday’s World Agricultural Supply and Demand Estimates. Total production increased 38 million bushels with this revision but this was offset with 35 million bushels of higher use (feed and residual, +10; exports, +25). The net effect was a 3 million bushel increase in the ending stocks forecast and a stocks to use ratio that was basically unchanged.

    World wheat supply estimates were increased today as forecast production in 2014/2015 is now an all-time high, 716.09 mmt, up 10.9 mmt from last month. Increased production was cited for the U.S. (+1.03), China (+2.0), and the FSU-12 (+7.95). World wheat use increased 6.9 mmt and beginning stocks were revised downward 0.6 mmt leaving ending stocks up 3.4 mmt. Days of use on hand at the end of the marketing year stand at a 100 day supply, up from 99 days last month.

    Crop Progress: USDA reports that as of August 10th 95% of the U.S. winter wheat crop had been harvested, ahead of the 5-year average of 90%. Spring wheat harvest is underway, 6% in compared to the 5-year average of 21%. Favorable condition ratings for spring wheat continue, 70% good and excellent, unchanged for the last several weeks.

    Weather: The Weekly ENSO Update from the Climate Prediction Center continues to forecast an El Nino event later this fall, but has reduced the probability from 80% to 65%. The most recent weekly sea surface temperature in the El Nino/La Nina critical region (region 3.4, along the equator between the international dateline and the western coast of South America) was right at normal, a 0°C departure.

    The August to October forecast, inclusive of ENSO effects, calls for most of the major wheat production areas of Texas to receive normal to slightly above normal levels of precipitation and temperatures near average.

    Commitment of Traders: Hedge funds trimmed net short positions ahead of today’s WASDE as reported in Friday’s Commitment of Traders report from the CFTC. Index funds continue to hold steady at about 750,000 net long positions. The price index was down to 586, mostly on a sharp move lower in the soybean market as the nearby contract rolled over from old crop August to new crop September. This is the lowest price index since July 27, 2010 when Kansas City wheat was $6.15, Chicago wheat $5.95, corn $3.63, and soybeans $9.98.

    Nearby wheat prices are down 75 cents since the first of July with a bearish 74% carry in the September to December contracts today.

    2015 Wheat Marketing Plan: Wheat prices fell in response to increased world production and increased export competition from the FSU-12. I have priced all the wheat called for in my 2015 marketing plan at this time. The next component of my price risk management program will be the selection of the level of crop insurance coverage. The 2015 base price will be determined by the average closing price of the July 2015 KC wheat contract from August 15.

    Additionally this fall, wheat producers will have the option of enrolling in the Supplemental Coverage Option, SCO. This is an area-based insurance product designed to supplement a producer’s individual crop insurance choice, basically covering the deductible from 86% down to the chosen level of coverage. This policy will be subsidized at a rate of 65%. Only crops that are enrolled in the Price Loss Coverage program, PLC, of the farm bill will be eligible for SCO.

    But since wheat producers will be required to make their crop insurance choice prior to program signup, all acres are eligible for enrollment with final coverage determination to be made when program choice is finalized and ineligible acres withdrawn. Check with your crop insurance agent for program details in your area.

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