Welch on Wheat: Lower Yields, Acres, Higher Stocks

Market Situation

WASDE. Lower yields and lower acres were not enough to keep U.S. wheat ending stocks from edging higher in today’s World Agricultural Supply and Demand Estimates.

The production estimate this month fell to 1.760 billion bushels, down from 1.824 billion in June. But an increase in beginning stocks of 23 million bushels, a 10 million bushel increase in imports, and a 45 million bushel cut in use raised all wheat ending stocks by 14 million bushels.

The season average farm price for 2017/18 was revised higher to $4.80 per bushel. That price would result in a PLC payment of 70 cents per bushel. The season average farm price for 2016/17 is $3.89 which earns a PLC payment of $1.61 per bushel.

Only minor adjustments were made to the global wheat supply and demand balance sheet. A small decrease in supply and a small increase in use lowered the estimate for days of use on hand at the end of the marketing year from 129.75 days to 129.36, still well above the 20-year average of 107 days. U.S. wheat production in the 2017/18 marketing year is 6.5% of the world total, a record low.

Crop Progress. The U.S. spring wheat crop index this week is down another 15 points to 283. The very poor category increased 6 points, fair was down 4, good down 1, and excellent down 1. South Dakota shows the highest percentages of spring wheat in the very poor and poor categories at 65% followed by Montana at 51% and North Dakota at 30%.

USDA estimates a spring wheat yield of 40.3 bushels per acre in 2017, down from 47.2 bushels last year and a trend line yield of 46.1 bushels.

Weather. The northern high plains continue to experience the worst drought conditions in the country. The precipitation forecast for the next 7 days offers little relief with rainfall more likely over the eastern half of the country and across Colorado and Kansas.

The temperature outlook is for above normal readings in the High Plains from the Dakotas to the Texas Panhandle. Much of the central and eastern Corn Belt is forecast to be cooler than normal.

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 0.6° C above normal, with the seasonal high temperature deviation currently forecast for the end of the June/July/August period.

Grain Commentary

Commitment of Traders. Money managers were net long all three wheat contracts according to the Commitment of Traders report from CFTC last Friday. KC and Minneapolis have been net long for weeks and Chicago joined this week adding 18,090 long contracts and holding 16,344 fewer short positions.

Both corn and soybeans remain net short, but by smaller margins with more longs and fewer shorts this week for both. Prices were up sharply on stronger markets and a rollover in nearby contracts, from July to September for grains and from July to August for soybeans.

The spread between the September and December Kansas City wheat futures contracts is 26½ cents. This amount is above full carry for that 90 day period (3 months x 6 cents per bushel/month = 18 cents). Any percentage of carry above 67% is generally considered a bearish commercial market indicator.

Marketing Strategies

2018 Wheat Marketing Plan. I completed all my sales of 2017 wheat on July 6 on that pull back in prices and priced the first 20% of 2018 today. The price fell below the 4-day moving average at 607½ and that triggered the first sales of next year’s crop.

Upcoming Reports/Events.
July 21 – Cattle on Feed
August 10 – Crop Production and WASDE
September 18-20 – Master Marketer, Castroville, Texas

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