Wheat could lead post-WASDE movement
Friday's USDA World Agricultural Supply & Demand Estimates (WASDE) report may not be the biggest earth-shaker as far as USDA reports go, but it could shed some light on where the U.S. stands in the world grain picture. And, that could have some price implications, especially in the wheat sector.
Analysts said Thursday they expect USDA to bump wheat and corn ending stocks from the January WASDE numbers, while soybeans may be cut slightly from a month ago, says Bruce Blythe, consultant with the CME Group who met with traders Jerrod Kitt and Kyle Schrad, of the Linn Group and INTL FCStone, respectively, to look ahead to Friday's report on THursday afternoon on the CME Group floor.
The wheat sector looks to be the one with the most potential for price movement based on Friday's report, Kitt says, namely because of the tightness of world wheat supply and the number of questions concerning U.S. wheat conditions from hard red winter in the southwestern Plains to soft red winter in the eastern Corn Belt.
"Just because we went into dormancy not looking too hot doesn't ensure a bad crop," Kitt says of the Plains HRW crop. "We do still need a lot of rain in the Plains, but there's still a lot of time to improve things.
"Over in the east, the SRW is looking pretty darned good. Generally speaking with winter wheat crop in the U.S. has a lot of questions. We're going into a very seasonal weather timeframe."
But, crop conditions at home are just part of the wheat equation that could swing prices after Friday's WASDE report's released. Right now, Kitt says U.S. wheat's "the cheapest wheat in the world," and how much wheat's on hand in other countries, namely the former Soviet Union (FSU) and India, will go a long way to determining how the markets respond to Friday's WASDE data.
"It will be interesting to see if we can get a surprise in the FSU states; Russia's pretty much running out of wheat. There are even rumors of our wheat trading into Russia," Kitt says. "On the bearish side, we're going to see a lot of exports coming out of India, but a lot of that is feed quality, not for food.
"We have had the designation of the cheapest wheat in the world for a while, but we haven't sold that much. We could decrease exports, which would increase carryout. But, world carryout could shrink," he adds.
For corn and soybeans, Friday's data will be all about South America. Thursday's CME Group corn and soybean futures were influenced negatively by Brazilian officials' announcement of higher crop size expectations there. But, whether those expectations are met depends entirely on the weather moving forward. And, answers on the weather may be quick in coming, says Schrad.
"I think a lot of market attention has shifted to South American weather. Weather is going to have a huge impact. We're looking ahead to weekend rains in Argentina, and I think they will play a major role," Schrad says. "They're kind of calling this rain system over weekend a 'make-or-break' system. But, expect to see some moderate crop decreases due to the weather that's already hit down there."