Increasing wheat stocks seen as a challenge
Wheat Fundamentals: poor winter wheat crop conditions suggest increasing 2008 USA end stocks to be a major challenge. Unprotected from the insulated effect of snow cover, southern Plains winter wheat subject to bitter cold this coming weekend. July Spring wheat futures are premium to winter wheat contracts at the CBOT and KCBT as it will be up to spring wheat seedings to make up the difference in potential winter wheat losses. Spring wheat futures are also attempting to buy acres away from corn and bean for 2008. Argentina has pulled out of the world export market, at least until the middle of next week and we anticipate the country may continue to come in and out of the international export market though much of the early winter. Weekly wheat sales, inspections and shipments remain strong. The northern hemisphere has planted 3-4% more wheat acres than year earlier levels and other than the US, most countries wheat crops are entering dormancy under average conditions, yes, even China.
The Three Years: early this week we identified the three years which had less than present 44% good to excellent winter wheat conditions. Odds do not favor present conditions to heal significantly in spring 2008 and a domestic wheat stock rebuild to be a challenge. Harvested acres for the three years in questions were notably less than usual. Allendale's research suggest if planted winter wheat acres increase for 2008 by four million vs 2007 levels, harvested acres could sink to a level of 73.7% vs a five year ave of 80.1%.
Basis: over the most recent 18 years, for the 48th week (week of Dec 3rd) of the calendar year, the average Gulf basis has been 37 cents over March futures. The max for wheat basis has been 74 over with the minimum at 9 over. The present basis level is 40 cents over. Wheat basis on average has had a tendency to work sideways from early Dec to the last week of Dec.
Old Crop End Users Panic: not based on the Gulf basis markets for hard red winter or soft red winter wheat. Basis levels for present through the month of Feb are providing adequate carry.
Exports: 2007/08 export use is 56% of annual production vs an average level of 46%. Week ended Nov 22nd had exports sales of 15 mil bu compare to a five week ave of 11.1 mil bu and ten week ave of 26.1 mil bu. 2007/08 cumulative sales are 95% above yr earlier levels and 75% above the five year ave. Shipments are 82% above year earlier levels and 63% above the five year average, helping to set a floor for old crop futures.
Top Ten: thus far in the marketing year, each of the top ten US wheat importing countries have bought more wheat than year earlier levels. The largest increase year on year is Algeria at 906% with smallest gain from Japan at 4%. The top ten cumulative are 74% higher as of Nov 22 vs year earlier levels, 13.235 mil tonnes vs 7.628 mil tonnes.
2007 Cash Marketing: Allendale sold 50% of its 2007 wheat inventory on 9/18/07 based on historicals. The second opportunity is next April-May. See our Hedge Advice page for instructions. The Dec/Mar CBOT wheat spread is 22.6 cents premium the March. Your cost to store wheat per month is 5.9 cents per bu. The present futures spread is paying more than break even and warrants the need to roll Dec Hedges to March 2008 futures. On Monday 10/22/07 we rolled the remaining 50% of our 2007 wheat hedged in the Dec 2007 futures to the March 2008 futures. As long as your local cash market is paying you to store unhedged wheat at a rate of 5.9 cents per bushel per month, then store.