Wheat rally stalls after crop report
The wheat markets had plenty of information to absorb this week, ranging from the first look at new crop stats by USDA to continued planting delays for spring wheat and corn. And just around the corner, it will also have to deal with the beginning of harvest. It was a mixture of bullish and bearish news, with price action choppy as a result.
The bullish news was mostly from USDA's projection for domestic wheat production, which at 2.206 billion bushels, will be down 19% from last year. Exports for this marketing year were increased by 30 million bushels, taking them to 1.01 billion. Ending stocks for 08/09 were lowered 27 million to 669 million; 09/10 ending stocks were pegged at 637 million bushels. Both figures suggest very manageable supplies and are not all that bearish.
However, it's the world statistics that are much more negative and, in reality, much more relevant to our prices here in the US. USDA projected that world ending stocks for 08/09 would increase by another 9 MMT to 167 MMT. They have increased 08/09 world ending stocks in every single supply/demand report this marketing year, with the biggest jump this month. With world ending stocks starting at 132 MMT one year ago, the 35 MMT increase represents a 27% increase from their first estimate; with almost half coming from the Black Sea alone (16 MMT). As we're close to wrapping up the world's marketing year- you'd think they'd have a better handle on world stocks this late into the season but stocks just keep getting bigger.
For the 09/10 marketing year, it gets even more burdensome. They project that world production will be 657 MMT, down 25 MMT (4%) from last year's record 682 MMT, but still the second highest on record. Ending stocks are estimated to be 182 MMT, the highest since 2001/02, and a 9% increase over the latest estimate for 08/09.
These statistics could easily make for some frustrating marketing for US farmers. If they only look at US numbers, they could conclude that we're in a bullish price environment with declining production and stocks. However, there is no arguing that US prices are very dependent on world supply/demand fundamentals, and as such, it paints a much different picture.
All of the major producers in the Northern Hemisphere are experiencing good growing conditions so far this year. Even the dry pockets of Ukraine and western Russia have received rains recently that have prevented serious yield losses. Only the US has had troubles so far, with notable production losses in hard red winter and impending losses for hard red spring. At about half way through the growing season, it doesn't look like dryness will be an issue this year. We still have to get the wheat harvested, but so far weather is not a major issue. Heck, even Argentina is getting some scattered rains in wheat country.
Seasonally, wheat has a strong tendency to peak in the early May time window, and we're certainly holding on into mid May. Price action was strong after the crop report but couldn't maintain the upward momentum, stalling at the trading range high. Given that harvest will kick off soon, I would expect that wheat will struggle to hold these gains unless outside markets offer support. If corn or beans lose their momentum, it could spell trouble for wheat. Friday's price action could have already alluded to that very thing but time will tell. I would expect that wheat prices will test the bottom of the trading range into the harvest low, and if the row crops come under pressure, wheat will likely take out those lows.