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Wheat focus turns to world production

Last week, wheat traded in choppy price action, basically just shadowing the corn market. Weather, crop tours and soaring cash basis for corn all worked to offset each other as prices jumped around, looking for direction.

Winter wheat harvest is nearly done, and spring wheat harvest has kicked in. Most expect big spring wheat yields but protein is likely to be low. Quality concerns are increasing this year. China reportedly lost 20 MMT to sprout; Russia is also having trouble with rain on their harvest and seeing quality declines as well. Now this week, Germany reported that they, too, are seeing some sprout damage with a rain delayed harvest.

This could be a unique year when demand for high quality wheat coincides with a year when there is very little of it around. Typically, in low protein years, protein premiums tend to surge at harvest, stabilize through winter and then make another run in the spring around late May/early June. This could well be one of those years. 

Stats Canada reported this week that they expect all wheat production at a 22 year high of 30.6 MMT, slightly higher than the trade estimate. Canola looks to be a record 14.7 MMT, which was actually slightly less than trade estimates. They did note that heavy rain and hail could reduce harvested acres.

Export sales for last week were 494 TMT, less than what we’ve been used to seeing but a respectable number nevertheless. The marketing year-to-date sales are still ahead of the average pace with 49% sold compared to 42% average.

The Pro-Farmer tour dominated much of the conversation last week. Long story short, they estimate US corn production at 13.46 billion bushels with an average yield of 154.1 bu/acre. While their yield is only slightly lower than USDA’s 154.4, their production estimate is a big 400 million lower. If you take their number directly to end stocks, it puts the US at 1.4 billion bushels, still a comfortable number that is double last year and the largest in four years.

But the soybean numbers are a different story. Pro-Farmer estimated soybean production at 3.16 billion bushels with a yield of 41.8 bu/acre. USDA’s August estimate had production at 3.255 billion with a yield of 42.6. Take Pro-Farmer’s estimate, with all else equal, and it puts US soybean end stocks at just 120 million, less than last year’s very tight 125 million, and the smallest since 2003/04.

These numbers are bullish both corn and soybeans, but particularly so for beans. Weather is still the biggest factor for this very late maturing crop, and hot weather on the way isn’t going to help. Frost talk was quiet this week as the heat moved in, but even a normal frost would shave yields that we can’t afford to lose.

As we wrap up the wheat growing season in the Northern Hemisphere, we turn our attention to the Southern Hemisphere. We watched as Argentine farmers planted less wheat again this year and note that the western regions are trending very dry. For Australia, the west is also trending very dry and yield prospects are already being shaved as much as 30%. Eastern Australia has had good rain and great potential, but a frost this week is thought to have damaged wheat in Queensland and northern New South Wales just as wheat was moving into the reproductive stage.

I still think wheat has a bullish story to tell, but it can’t break the spell of bearish corn. Spring wheat harvest should move quickly with the hot and dry weather, thus hopefully getting that harvest pressure soon behind us. Corn will continue to dominate but we’ve likely seen the lows there, too. Wheat tends to rally into the late Sep/early Oct time window and I look for that to happen this year as well - before the Southern Hemisphere harvest starts in late October.

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