Welch on Wheat: Marketing Year Exports Up 32% Over Last Year

Image from Justin Ballew, Clemson University

Market Situation

Crop Progress. The condition of the U.S. and Texas wheat crops again showed improvement in this week’s Crop Progress report. For all U.S. winter wheat, the percent rated fair declined by 1 and excellent category increased by 1. This raised the crop condition index score 2 points to 346. The average index for this week of the growing season is 337. It was 355 at this time last year.

The Texas crop condition score was up for the third week in a row, up 2 points to 332. As in the U.S. ratings, fair went down 1 and excellent increased by 1. The average crop condition index for Texas wheat is 295.

In Kansas, the percent of crop rated very poor and poor declined compared to the week before from 17% to 16% and the good and excellent increased from 48% to 51%. Oklahoma wheat crop condition ratings showed no change in the very poor and poor rankings of 17% and 2% decline in the good and excellent.

As we have noted, total wheat acres planted in the U.S. for 2017 are projected to be the lowest on record due to low wheat prices and better returns from alternative crops. But the U.S. only produces about 8% of the total world wheat crop and global wheat acres do not tend to change very much.

However, there is a positive correlation between last year’s wheat price (the U.S. season average farm price) and the next year’s world wheat harvested area: higher prices, higher acreage; lower prices, lower acreage. For 2016, those acres dropped 1.4%.

We are seeing some of that factor into wheat production around the world for 2017. GAIN (Global Agricultural Information Network) reports from USDA, Foreign Agricultural Service last week show reduced production prospects for Russian and Ukranian wheat in 2017/18 compared to the 2016 crop.

In Russia, the Ministry of Agriculture expects a small increase in higher yielding winter wheat area and a larger decline in spring wheat acres. Yields are expected to be back near trendline as weather conditions are slightly worse than 2016. Total production is expected at 2.425 billion bushels compared to 2.665 billion last year, down 9%.

In Ukraine, wheat acres for 2017 are down and corn area is up. With fewer acres and a return to normal yield levels, wheat production is expected to be down 11%, from 987 million bushels to 877 million.

Grain Commentary

Statistics Canada’s March planting intentions report today shows all Canadian wheat for 2017 at 23.182 million acres, down from 23.212 million in 2016 and 24.111 million acres in 2015.

Weather. This week’s drought monitor continues to show a sharp drop in drought intensity over the winter wheat production areas of the Southern High Plains.

Favorable moisture prospects the next several days favor eastern Colorado, Kansas, and Oklahoma. Drier conditions return towards the middle of next week.

The Oceanic Nino Index continues on a path towards a mild El Nino event next fall after this summer’s neutral conditions.

The 3-month seasonal outlook updated yesterday shows warmer than normal temperatures for May/June/July and mostly favorable moisture prospects.

Grain Use. U.S. wheat export sales commitments are at 99% of the projected marketing year target of 1.025 billion bushels. Marketing year exports are up from 775 million bushels last year, a 32% increase. Wheat inspected for export out of the Texas Gulf is double what it was last year at this time and very near the long term average. The Texas Gulf wheat export bid basis is up to +35 cents from -35 cents a month ago.

Cash wheat in the central Texas Panhandle continues to trade at a discount to corn, about 86% of the price of corn.

Commitment of Traders. The Commitment of Traders Report from the CFTC this afternoon shows money managers increasingly bearish in April. They are net short corn, soybeans, and wheat. Compared to the week before longs were down and shorts were up for corn and wheat. Soybean longs were up 1,424 contracts but this was offset by an increase in shorts of 16,651. But soybeans did show a 6 cent price increase while the grains were all lower.

The spread between old crop May and new crop July Kansas City wheat futures contracts today is about 13 cents, right at full carry for that 60 day period (2 months x 6 cents per bushel/month = 12 cents). Any percentage of carry above 67% is generally considered to be a bearish commercial market indicator.

Marketing Strategies

2017 Wheat Marketing Plan. I priced the first 20% of the 2017 wheat crop at 480 on the best prices we had seen since last summer. With fewer acres and normal yields, U.S. wheat ending stocks should be some lower by the end of the next marketing year. But major price strength will depend on developments elsewhere with the U.S. accounting for only about 8% of global production and 15% of world exports.

Upcoming Reports/Events.
May 1 – Grain Crushings
May 9 – Short-term Energy Outlook
May 10 – Crop Production and WASDE

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