Welch on Wheat: Export Sales Hit USDA’s Marketing Year Target

Market Situation

Crop Progress. The condition of the U.S. and Texas wheat crops in last Monday’s Crop Progress again slipped slightly compared to the previous week, but remain above normal. For all U.S. winter wheat, the percent rated very poor and poor both increased by 1 while the wheat rated in excellent condition fell by 2. The condition index stands at 337, down 7 points from last week but still 8 points above average.

The percent of the Kansas crop rated as very poor and poor was unchanged at 27%. This is the highest reported percentages in these categories for all states in the report—from the top wheat producing state in the country. The impact of freezing temperatures and snowfall in western Kansas in late April/early May is still being assessed while much of the central and eastern portions of the state are experiencing severe weather this week.

The Texas crop condition index fell 5 points this week to 323. Poor and fair were up a combined 3 points with good and excellent down 3. The average crop condition index for Texas wheat at this time of year is 286.

Weather. Severe weather (heavy rain, wind, hail, tornadoes) covered much of the winter wheat production area of the Southern High Plains yesterday, from the Rolling Plains of Texas, across western Oklahoma, and much of Kansas. Severe thunderstorms are forecast again today across much of the Southern Plains, extending up to the Ohio Valley. Rainfall amounts over the next 72 hours in excess of 2 inches are expected in many areas.

The Oceanic Nino Index is forecast to continue in mostly neutral territory this summer into early fall. The seasonal outlook for June through August shows normal temperatures in the central and northern plains associated with above normal precipitation, warmer elsewhere with normal rainfall.

Grain Use. Wheat export sales commitments have reached the target set by USDA for the 2016/17 marketing year, inspite of a strong dollar and ample global export competition. The wheat basis at the port of Houston has improved about 80 cents per bushel over the last several months, back up to normal, and wheat inspected for export out of the Texas Gulf is running at normal levels as well.

Commitment of Traders. The Commitment of Traders Report from the CFTC this afternoon shows managed money traders on the aggregate more bearish compared to the week before in that their net long positions decreased another 25,625 contracts. Corn was the only commodity tracked here that had an increase in net longs. Longs in corn were up 17,135 which outnumbered the increase in shorts of 13,854 for a net gain of +3,281.

Grain Commentary

Kansas City wheat is the only contract in positive territory for net longs, but not by much. Longs are down for the third week in a row, dropping this week by 2,208 contracts. The increase in short positions of 8,863 resulted in a net change of -11,071.

The spread between the July and September Kansas City wheat futures contracts today is 17 cents, the same as last week and up 1 cent from the first of April. This amount is above 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 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. The weather rally in early May provided an opportunity to add to pre-harvest sales. I am ready to price additional wheat prior to harvest then wrap up sales for the year around harvest.

Upcoming Reports/Events.
May 26 – Cattle on Feed
June 9 – WASDE and Crop Production
June 23 – Cattle on Feed
June 29 – Hogs and Pigs
June 30 – Acreage; Grain Stocks

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