Welch on Wheat: Early MY Exports Match USDA’s Pace

Market Situation

Crop Progress. Only minor adjustments were made to the U.S. winter wheat crop condition ratings this week. The percent of crop rated fair increased by 1 and the percent rated good declined by 1. This lowered the crop condition index by 1 point to 336, still well above the average score for this week of the growing season at 325.

The percent of winter wheat rated very poor and poor in Kansas declined from 24% to 23%; the same categories in South Dakota increased from 48% to 50%.

The U.S. spring wheat crop index this week is down another 14 points to 311. The very poor and poor categories increased 7 points, fair was down 3, good down 3 and excellent down 1.

South Dakota shows the highest percentages of spring wheat in the very poor and poor categories at 64% followed by Montana at 37% and North Dakota at 24%.

With wheat harvest winding down, the condition rating of the Texas wheat crop was unchanged in this week’s report. The index is closing out the year at 323, down from 333 at the close of the 2016 crop but above the average index score of 288.

Weather. Over the last 30 days, U.S. drought conditions have improved significantly in the southeast and worsened in the northern plains.

The precipitation forecast for the next 5 days shows rainfall over much of the Great Plains except the western portions of the Dakotas and eastern Montana.

The Oceanic Nino Index from the Climate Prediction Center is forecast to continue in mostly neutral territory this summer into early fall. The temperature reading this week was 0.5° C above normal, with the seasonal high temperature deviation currently forecast for the end of July.

Grain Use. Early marketing year wheat export sales are on target to reach USDA’s projection of 1 billion bushels in 2017/18. For the week of June 15, export sales were 20 million bushels putting cumulative net sales at 277 million bushels. That is 28% of the marketing year export target. Normally, by the end of June, we are at 27% of the marketing year total.

Commitment of Traders. A separation in market outlook between wheat, corn, and soybeans in today’s Commitment of Traders report for Tuesday June 20th. Though still net short, managed money traders in Chicago wheat increased long positions held by 20,998 contracts and were short 52,919 fewer contracts.

Grain Commentary

KC wheat traders pushed net long positions to 32,965, about where we topped out after the freeze and snow event in late April/early May. Both corn and soybeans saw fewer long positions, an increase in shorts, and lower prices this week.

On the Minneapolis Exchange, money managers trading hard red spring wheat futures increased net longs by 877 contracts this week: longs increased by 1,002 to 12,300; shorts increased from 0 to 125.

The spread between the July and September Kansas City wheat futures contracts is 18¼ cents, up 2¼ cents from early 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 sold an additional 20% of the 2017 wheat crop on Tuesday with the completion of wheat harvest (6/20). I still have 20% unpriced that is in storage. I have until the beginning of August before commercial storage charges begin to apply. On a technical signal that the price trend is turning lower, I am ready to price this final portion of the 2017 crop and turn my sights to 2018.

Upcoming Reports/Events.
June 29 – Hogs and Pigs
June 30 – Acreage; Grain Stocks
July 1 – Registration opens for Master Marketer, brochure available here. Registration opens for TEPAP, brochure available here.
July 12 Crop – Production and WASDE

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