Welch on Wheat: Export Target Lowered 1 Bln Bushels

Market Situation

Crop Progress.  The U.S. spring wheat crop index this week is down another 5 points to 278.  The very poor category increased 2 points, fair was down 1, and good down 1.  South Dakota spring wheat rated very poor and poor is up to 74% (+2%), Montana 61% in those same categories (+9%), and North Dakota at 40% (+5%).  

In the July Crop Production report, USDA estimated 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 5 days offers relief for the eastern 2/3rds of the Dakotas and dry areas of Nebraska.

Rainfall this week across southern Minnesota/northern Iowa to southern Wisconsin/northern Illinois may aggravate flooding conditions along the Fox and Des Plaines Rivers.

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 the June/July/August period.

Above normal temperatures are forecast to persist over the High Plains and extend to a lesser degree over much of the Corn Belt.

Grain Use.  The U.S. wheat export target was lowered from 1 billion bushels to 975 million in the July WASDE. Early marketing year sales are on target to reach that objective.  The weekly average so far this year is 16 million bushels with a sales pace of 14 million per week needed to reach 975 million.

China, the second largest wheat producer in the world behind the EU, is expected to continue to import high-protein wheat due to demand growth from an expanding middle class (Grain and Feed Annual, Beijing, China, 4/4/2017).

Grain Commentary

Though not a U.S. wheat customer, India (the world’s fourth largest wheat producer) again is expected to import wheat despite favorable crop conditions in 2017.

According to USDA, imports are cheaper for wheat users along the coast due to high inland freight costs (India Grain and Feed Update, 4/28/2017) and food demand is strong (Grain: World Markets and Trade, July 2017).

Commitment of Traders.  Money managers were net long last week ahead of Wednesday’s WASDE report.  Longs increased and shorts decreased for corn, soybeans, Chicago wheat, and Kansas City wheat.

Only Minneapolis wheat, the grain contract at the heart of current drought concerns, saw a decrease in long contracts held and an increase in short positions.  Prices in the nearby futures contracts on Tuesday were higher for corn and soybeans but lower in the wheat contracts, especially Minneapolis.

The spread between the September and December Kansas City wheat futures contracts is 26¼ 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 have completed all my sales of 2017 wheat and am 20% priced on 2018.

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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