Welch on Wheat: Texas Crop Improves, Kansas and Oklahoma Decline

Market Situation

Crop Progress. Condition ratings of the Texas wheat crop improved last week with 1% decreases in the very poor and poor categories and 1% increases in fair and excellent. The crop index score is up to 349 from 344 a week ago. The average score for this time of year is 304.

Kansas, Oklahoma, and Texas normally account for 1/4th to 1/3rd of total U.S. wheat production. The percent of wheat rated good and excellent is down this week for Kansas and Oklahoma compared to the last week of February, but both are still well above 50%. Texas wheat rated good and excellent is up.

Weather. Temperatures earlier this week fell to the low teens in parts of southeastern Colorado and southwest Kansas. Wheat that has not begun to joint can tolerate temperatures in this area but the plant becomes more susceptible to cold as it develops. Based on maps from the Oklahoma Mesonet, the likelihood of wheat in this area reaching first hollow stem is at 50% or less. Any freeze damage from this event will become more observable over the next several weeks. Temperatures did warm quickly after this cold snap. The forecast high for Dodge City, KS today is 87.

In Monday’s ENSO update, the latest weekly sea surface temperature (SST) departure is +1.7°C, down from +1.9°C the week before. The most recent seasonal forecast for April through June calls for above average precipitation and below normal temperatures in the Southern Plains, consistent with the El Nino pattern. By September/October/November, the chance of a return of La Nina is 50%.

Commitment of Traders. Managed money traders in the grain commodity markets on Tuesday March 15th (reported by the CFTC Friday March 18) were less bearish, even moving to the bullish side in case of soybeans. The wheat markets saw little change in the number of long contracts but a considerable reduction in short positions. Corn and soybeans saw a marked increase in long contracts as well as fewer shorts.

Wheat prices are up 12 cents since the first of the year, touching $5.00 twice last week. The spread between old crop May Kansas City wheat and new crop July increased to 11 cents today, putting cost of carry in the market at 92%, a number in the commercial market bearish range (carry <33% bullish and carry >66% bearish).

Marketing Strategies

2016 Wheat Marketing Plan. I took advantage of this modest March rally to price an additional 15% of the 2016 wheat crop. I intend to sell in increments of 15 to 20% over the next several months with the final 25 to 30% at harvest.

Upcoming Reports/Events.
March 25 – Hogs and Pigs
March 31 – Grain Stocks; Prospective Plantings
April 4 – Crop Progress
April 12 – WASDE; Short-term Energy Outlook
April 22 – Cattle on Feed
May 3 & 4 – Grain Grading Workshop, Amarillo

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