Welch on Wheat: Reports Mostly in Line with Expectations

Market Situation

Prospective Plantings and Grain Stocks. The planting intentions report for wheat shows 55.4 million acres of all classes, down 1.3 million acres from last year and just below the average trade guess of 55.8 million. In the Winter Wheat Seedings report in January, USDA estimated all winter wheat acres at 40.452 million. That number was raised slightly today to 40.751 million.

The wheat stock estimate came in about as expected today, 1,124 million bushels, up 67 million bushels from this time last year but 130 million below the 5-year average.

The last time final wheat acreage numbers were significantly different from the Prospective Plantings report was 2011. That year flooding in the Dakotas reduced spring and Durum wheat acres.

Crop Condition. The condition of the Texas wheat crop continues to improve at levels much better than average according to the “Texas Crop Progress and Condition” reports. As of March 29, only 9% of Texas wheat was in the very poor to poor condition, down from 11% the week before. The last time we saw spring condition ratings this high in Texas wheat was 2007 and 2010. This week’s ratings saw a 1% decline in the very poor, a 1% decline in the poor, a 2% decline in the fair, a 1% increase in the good, and a 3% increase in wheat rated as excellent.

Wheat condition ratings in Oklahoma improved this week where there was a 1% decline in the poor category, a 3% decline in fair, a 2% increase in good, and a 2% increase in excellent. Kansas wheat conditions declined: very poor, +1%; poor, +3%; fair, -2%; good, -3%; excellent, +1%. The wheat crop condition index for these three Southern Plains states is steady this week at 329.

A monthly update from Nebraska showed that at the end of March (with comparisons to late February) wheat rated very poor 11% (+11%); poor 18% (+15%); fair 37% (+2%), good 31% (-26%), and excellent 3% (-2%).

The Texas top soil moisture condition report shows 30% of the state in very short or short moisture conditions. Soils in West Texas, the Panhandle, and Rolling Plains were drier this week, mostly steady elsewhere.

Weather. The weekly Drought Monitor shows persistent dry conditions across much of the winter wheat production areas of Texas and Oklahoma. Over the last 30 days, more of Kansas has moved from the Abnormally Dry category to Moderate Drought. The same is true for Minnesota and the Red River Valley of the eastern Dakotas.

Precipitation in the month of March has been less than 50% of normal for much of the Central Plains. The 5 to 7 day rainfall outlook is for most of this same area to remain dry.

The El Nino/Southern Oscillation (ENSO) Diagnostic Discussion from the Climate Prediction Center of the National Weather Service this week continues to show an emerging El Nino situation, strengthening into next fall.

Commitment of Traders. Last week’s Commitment of Traders report showed a significant increase in the net long positions of index funds. Hedge funds reduced bearish bets in every market except soft red winter wheat. This reversed somewhat the sharp increase in selling we saw in last week’s report. Prices were up about 20 cents across the board.

In the July 2015 Kansas City wheat contract, prices have rebounded from the contract low of 522¾ earlier this month. The spread between the old crop May Kansas City wheat contract and the new crop July is 4¾ cents, putting carry at 40% (in the neutral range, with <33% bullish and >66% bearish).

Marketing Strategies

2015 Wheat Marketing Plan. With a 65% revenue protection crop insurance policy in place, I am ready to price an additional 20% of the 2015 crop on this price move. That will bring me to 60% sold. If production prospects look favorable, I am prepared to price up to 80% before harvest.

Upcoming Reports/Events.
April 6 – USDA Crop Progress reports resume
April 7 – ARC/PLC decision at FSA; Short-term Energy Outlook, Energy Information Administration
April 9 – WASDE
April 24 – Cattle on Feed
May 12 – WASDE, first estimates of the 2015/16 marketing year


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