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Can Wheat Benefit From Bullish Friday Report?
Grains spent the week dealing with weather and waiting for the supply/demand report on Friday, which would give the market USDA’s first estimates for the 2014/15 crop year.
Most corn and soybean producers had a few days of open weather to work in the fields. Plains wheat farmers finally found some relief from the heat but not near enough rain for most of the region. Crop conditions will likely show another week of declines across most of the hard red winter wheat states.
Rains did reach some areas surrounding the major growing regions, which likely helped the crop in the north. Light rains are forecast for the weekend in most of the Plains, but wheat in Oklahoma and Texas is too far advanced to be helped at this point.
The supply/demand report had plenty of numbers to chew on – both old and new crop. All winter wheat production was estimated at 1.403 billion bushels, about 65 million less than trade expectations, and down 131 from last year. Most of the drop came from soft red where only 447 million bushels are projected, 20 million less than expected and down 118 million from last year. Hard red winter was 36 million less than expected at 746 million, which is almost exactly equal to last year.
USDA was equal to the Kansas crop tour’s number of 260 million for that state, which would be down from last year’s 319 million. Weather hasn’t improved that much for Kansas; in fact, it was brutally hot, dry, and windy just after the tour, and it’s very likely that Kansas production will be even lower than USDA’s estimate.
Montana appears to be the one bright spot for hard red winter wheat with this year’s production estimated up 27% at 103.4 million bushels on an average yield of 44.0 bu/acre, up 1.0 from last year.
All U.S. wheat production for 2014/15 was pegged at 1.963 billion bushels, down 167 million from last year. While exports for 2013/14 were increased by 10 million to 1.185 billion, the next marketing year’s exports are projected to decline to 950 million. Feed usage also drops 50 million to 170 million.
That leaves new-crop ending stocks at 540 million bushels, down from this year’s 583 million and the fifth year in a row of lower ending stocks.
The domestic wheat numbers had a bullish slant to them, but world numbers dampened the enthusiasm. While world production for 2014/15 will be about 17 MMT lower than this year, ending stocks are actually projected to increase by 1 MMT.
In addition to lower production forecast from the U.S., it looks like we’ll also see lower output from Canada (no surprise after a boomer crop last year), Australia, North Africa, and Ukraine. Those losses are partially offset by increased production expected from Argentina and the EU.
U.S. corn numbers were bullish old crop but bearish new crop. Old-crop exports were bumped up another 150 million to a hefty 1.9 billion bushels, and ethanol usage increased another 50 million; old-crop end stocks were lowered 185 million to 1.146 billion. However, new-crop production is expected to be another record at 13.935 billion bushels as higher yields more than offset lower plantings. End stocks are projected at 1.726 billion as exports and feed use drop. World corn stocks for next year are estimated 13 MMT higher at 182 MMT.
Soybeans continue to whittle down old-crop end stocks to only 130 million. But new crop will see relief with projections at 330 million after an expected record crop of 3.635 billion bushels on record yields and record plantings.
While wheat production is likely still declining, futures struggled to maintain the upward momentum this week. Traders were quick to jump on the positive report numbers to position themselves for a popular short trade that starts around May 10.
With the kind of weather market we are currently in, that seasonal trade is much more risky. I look for more upside to the wheat complex, led by Kansas City. Minneapolis has also shown some energy lately on planting delays in the northern Plains and could well keep pace with KC.
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