Boomer crop in Kansas
Weather took a back seat this week as the market focused on the crop tour in Kansas and the rapidly approaching harvest. The burgeoning crop in the southern plains was verified by the tour and it appears the harvest is already underway in the far south.
A quick look at tour results: Average yield for the state is a record 49.1, barely higher than the previous record yield of 49.0 in 1998. Total production estimates for Kansas is 404 million bushels, up 276 million over last year (a 46% increase). This would be the largest Kansas crop since 2003’s 480 million.
Harvest in Kansas is expected to start by late May, a good two weeks ahead of normal. The tour also noted a large prevalence of disease in some regions, and suggested that yields would likely be lower by the time harvest rolled around.
The huge production coming out of the southern plains along with rains across the northern plains and Canadian prairies have been an enormous drag on wheat prices, offsetting increasing worries about dry conditions in the Black Sea region and northeast China.
Speaking of weather, forecasts are bringing one more round of cold weather into the Midwest next week. Some are suggesting it could get cold enough to do some damage. Obviously, we’ll have to wait and see how that pans out. The market is understandably a little jaded when it comes to freeze warnings.
Informa issued their May acreage and production estimates on Friday. They pegged spring wheat acres at 13.476 million, up from USDA’s estimate of 12.0 million. Total corn acres were 96.124 million, compared to USDA at 95.9 million. Soybean acres were 75.822 million vs. USDA’s 73.9 million.
They also estimate total winter wheat production at 1.656 billion bushels; hard red winter at 1.008 billion, up 228 million over last year, and soft red winter at 421 million, down 37 million from last year.
While the US is on track for huge wheat production, the rest of world is not quite that robust. The United Nations Food and Ag Organization released its latest world wheat production estimates, showing a drop of 3.6% from last year, largely due to declines in the EU, Ukraine, Kazakhstan and China. Ending stocks were projected to be down 6.5% over last year, largely due to increased feed wheat usage.
It’s safe to say that the larger than expected US crop will offset much of that world drop, presuming harvest goes well. That said, if conditions don’t improve in the Black Sea and the northeast of China, production estimates will begin to drop again.
Winter wheat usually puts in a high in early May, with spring wheat’s high usually in early June. Obviously, that won’t be the case this year – at least for winter wheat. It’s too early to say if the seasonal is inverted, suggesting that early May would be a low. There are still a plethora of fundamentals that are colliding in this market, and that doesn’t look to change any time soon.
And then, there’s the corn market – which is having just as much influence on wheat as the weather. Surging basis levels are supporting the May delivery contract, with some suggesting a short squeeze is on the way. Corn prices put in a pretty impressive reversal up on Friday, with the expiring May leading the way. The bulls could argue that corn has bottomed for the near term as tight supplies continue to underpin.
It’s hard for anyone to be a wheat bull in this environment. However, as has been the case for over a year, wheat will go where corn goes. If corn has bottomed, wheat’s closet bulls could make a case that wheat has bottomed as well. The bears might have something to say about that as they are clearly in control of this market; but, with the funds having a record short position one should be very careful pressing the downside.
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