You are here

Winter wheat crop alert for markets

Grain markets waited for weeks for the slew of statistics that were finally released on Friday, and we saw plenty of price action once the numbers were out. Frankly, I’m just glad to get the numbers behind us so we can stop wringing our hands and get on with it.

Let’s start with winter wheat plantings which carried a few surprises. Total winter wheat plantings at 41.82 million acres were up 500,000 over last year, but still down 765,000 from the average estimate. The biggest surprise was hard red acres at 29.1 million, actually down 800,000 from last year while the trade had expected an increase of 400,000. Soft red had a surge in plantings of 1.3 million at 9.4 million acres, 500,000 more than estimated and largely due to the early harvest of row crops in the Midwest, good moisture and high prices. Soft white plantings were down 30,000 acres at 3.27 million, 200,000 less than anticipated.

Added to the positive slant to the hard red market, USDA this week declared hundreds of counties, many in the central plains, disaster areas. The prolonged dryness across the wheat belt and the disappointing rains in the central plains this week are bringing more attention to this area – and it’s only January. NOAA made it official this week as they announced that 2012 was the warmest year on record, beating the old record by a whole degree. Considering that a big chunk of the hard red acres, and some white wheat as well, were significantly stressed going into dormancy, the lower acreage makes timely spring rains all the more important. 

The stocks report also held some surprises – in corn, which I guess shouldn’t be a surprise. Corn stocks on Dec 1 were only 8.03 billion bushels, down 17% from last year and 189 million lower than estimates. On-farm stocks down 26% while commercial stocks were only down 1% also raised some eyebrows. Wheat stocks were largely unchanged from last year at 1.66 billion. Soybean stocks at 1.97 billion bushels were also down 17% from last year on record disappearance for the Sep/Oct/Nov time period. On-farm stocks were down 20% while commercials inventories were down 14%.

The supply/demand report also had its share of adjustments. US wheat feeding was increased 35 million bushels and ending stocks were set at 716 million, down 38 million and much further than the 14 they were expecting. World wheat production was down .8 MMT on a drop in Argentine production of .5 MMT and other minor adjustments. It was curious that USDA did not lower Australian production again, leaving it at 22.0 MMT, much higher than other estimates. They must know something I don’t – no surprise there, either. Argentine production at 11.0 MMT seems to be a little on the high end as well. Wheat prices quickly responded higher, reversing off of the new lows they had posted just minutes before the report’s release. They pulled back off from their surge but still settled moderately higher for the day, putting in a large outside day higher.

US corn production was raised 55 million bushels to 10.78 billion on a slight drop in harvested acres (after an increase in planted acres) and an upward bump in yields to 123.4 bu/acre. Feed and residual usage surged 300 million to 4.45 billion, but exports were slashed 200 million to a 41-year low of only 950 million. Ending stocks dropped another 45 million to 602 million bushels, the lowest in 17 years. An increase in Argentine corn production of .5 MMT helped to offset some of the lower US ending stocks, but corn prices had plenty of reason to be bullish after the report, also putting in an outside day higher.

US soybean production was up 44 million bushels to 3.015 billion. Crush was increased 35 million and ending stocks were 5 million higher at 135 million. Argentine production was lowered 1 MMT but Brazil was up 1.5 MMT, leaving world ending stocks just .5 MMT lower.

There was actually plenty of activity in the wheat complex this week before the reports. Egypt bought two cargos of soft red wheat, one from the US and the other from Canada. The interesting thing here is that French offers were way above US offers and there weren’t any offers from the Black Sea or Australia, leading some to suggest that the path is becoming clearer for US business. Certainly for high quality wheat, the path leads directly to North America. 

The business is already starting with sale confirmations of Chinese purchases of high protein milling wheat. It’s also been rumored for weeks now that Brazil is shopping around for US or Canadian high-pro’s as well. We heard chatter of European business shopping US wheat as they watch their supplies dwindle rapidly. European exports have been on a blistering pace, up 30% over last year; but they appear to be slowing down as stocks tighten much faster than normal. 

It’s also worth noting that reports are coming out of China talking about its coldest winter in 28 years that has seen blizzards creating power outages, killing supposedly 180,000 head of cattle and causing a great deal of concern about winter-kill on grain crops. 

We’re already on high alert with the US winter wheat crop, Russia, Ukraine, Europe and now China. Might as well mention that northern India is also seeing some dryness becoming a problem that could affect their wheat crop. Meanwhile, they are still offering wheat for export every week.

Wheat prices continued to get hammered on every close this week as index fund rebalancing squashed every attempt to rally – except on Friday. The rebalancing supposedly is over after this week and perhaps now we’ll see some rallies actually follow through. The fundamentals hold lots of positive potential, but the charts have been beaten up pretty harshly. The big reversal on Friday offers the bulls something to grab onto, and after the long slide recently we could see markets get a nice snap back on just normal rebound action. The seasonals normally would have wheat pushing higher into early Feb. 

-------

THIS IS A SOLICITATION. Reproduction or rebroadcast of any portion of this information is strictly prohibited without written permission. The information reflected herein is derived from sources believed to be reliable; however, this information is not guaranteed as to its accuracy or completeness. In an effort to combat misleading information, The Linn Group has performed its due diligence to insure that all material information is provided within this report, though specific information related to your investment, hedging or speculative situation may not be included. Opinions expressed are subject to change without notice. This company and its officers, directors, employees and affiliates may take positions for their own accounts in contracts referred to herein. Trading futures involves risk of loss. Past performance is not indicative of future results.

Read more about