Welch on Wheat: Conditions Deteriorating but Still Mostly Positive

Market Situation

Crop Conditions. USDA issued its last winter wheat crop condition report in late November and will release the first weekly report for 2015 on April 6. In the meantime, several winter wheat producing states will offer monthly updates on wheat condition ratings.

Reports from Texas, Oklahoma, Kansas, and Nebraska show some deterioration in wheat condition ratings since USDA’s report in November. Though condition ratings have slipped, general conditions as of late December are still favorable with the percent of very poor and poor wheat increasing from 13% to 16% in Texas, 11% to 12% in Oklahoma, 4% to 9% in Kansas, and 2% to 4% in Nebraska.

Except for Texas, the condition ratings in December this year are about the same as they were at this time for the 2014 crop. Condition ratings began falling sharply last year in February for Oklahoma and March in Kansas.

Weather. Beneficial precipitation fell over much of the Texas wheat crop this week, and parts of Oklahoma, but missed drier areas to the north.

The 7-day forecast from the National Weather Service calls for most of the southern High Plains to be dry.

The El Nino weather pattern is forecast to stall out at the official El Nino threshold before additional warming later this summer and fall.

World Wheat. In the latest forecast from the International Grains Council, total world grains in the 2014/2015 marketing year are a record 2,002 mmt, up from 1,990 mmt in November, due mostly to an increase in corn production. The total wheat production estimate was unchanged at 717 mmt, but a 4 mmt reduction in consumption raised carryover stocks from 193 mmt to 196 mmt.

IGC’s provisional forecast for 2015/16 world wheat production is 701 mmt, down 2% from the current year but still 2% above the five-year average. IGC notes mostly favorable growing conditions for wheat so far this winter in the U.S., the E.U., Russia, India, and Turkey.

Commitment of Traders. Managed money positions in the grain markets took on a more bearish posture this week. Net long positions by index traders and hedge funds were down over 53,000 contracts. Hedge funds were net short both wheat markets and soybeans but were still net long corn.

Even though prices have declined over 50 cents since the first of the month, carry in the nearby Kansas City wheat contracts is still in the bullish range (below 33%).Marketing Strategies

2015 Wheat Marketing Plan. I have priced all the 2015 wheat called for in my marketing plan at this time. With a 65% revenue protection crop insurance policy in place, I intend to price at least another 20% this spring. If production prospects look favorable, I am prepared to price up to 80% before harvest.

Upcoming Reports/Events.
February 10 – WASDE, Short-term Energy Outlook, U.S. Energy Information Administration
February 19-20 – USDA Agricultural Outlook Forum
February 26 – Grain Market Report, International Grains Council
March 10 – WASDE
March 20 – Cattle on Feed
March 27 – Quarterly Hogs and Pigs
March 31 – Grain Stocks, Prospective Plantings
April 6 – USDA Crop Progress reports resume

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