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Wheat data proves negative

09/12/2011 @ 1:22pm

The crop report this morning held a few surprises for the wheat complex. The trade had been looking for roughly unchanged ending stocks but USDA increased them by a hefty 90 million bushels to 761 million bushels. Most of the increase came from a 75 million bushel drop in export projections; a 5 million bushel drop in food use and a 10 million bushel increase in imports completed the adjustment. US production was left unchanged.

World wheat stats were also negative with a 6 MMT increase in production at 678 MMT, and ending stocks 6 MMT higher at 194 MMT. We saw Canada’s production estimate raised 2.5 MMT with a 2 MMT increase in exports. Europe and Ukraine also saw a 1 MMT increase in production along with a 1 MMT increase in exports for both.

Soybeans also got a negative report with production slightly higher than last month at 3.085 billion bushels and ending stocks up 10 million bushels to 166 million. Corn had a slightly bullish report with USDA lowering yields to 148.1/acre, about 1 less the average estimate. Total corn production was lowered to 12.497 billion bushels, just 22 million less than trade estimates. 

Wheat found some buying on the weaker opening trade following the report, and will likely see a bounce from these levels. It is interesting to note the bull spread action all day in Chicago wheat, as well as the notably weaker Kansas City price action compared to Chicago and Minneapolis. Talk of rains in the central plains has kept that market on the defensive. 

There is no question that the world has plenty of wheat available, even with large volumes moving into the feed channel. While the US did not have a huge wheat crop, the higher protein wheat will allow millers to blend with last year’s low quality wheat. In addition, we still only consume about half of what we produce and so we are still very dependent on a robust export market, which is where the bears have a strong argument.

The major exporters have plenty of wheat to sell and they are clearly willing to be aggressive with pricing. Last week, Kazakhstan re-emerged as a seller to Egypt, undercutting even the Russians. Russian wheat prices declined slightly with the new competition. The EU saw some late season rains that shored up their production and also have plenty of wheat to sell, and will be competing head to head against the Black Sea for those key North African markets. 

We’re also watching the Southern Hemisphere’s wheat crop get off to a good start. Australia has had timely rains and is on track for a near-record crop. Their wheat will be coming into the pipeline starting about December. We can’t forget about Canada, who will be competing against the US in the same markets; they’ve already found some willing buyers for last year’s low-pro wheat right here in the US for some of their lower quality feed wheat.

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