Markets digest a lot of data

Winter wheat acres are at the second lowest on record.

Wheat markets showed strength all week, with futures rallying to test last week’s spike highs.

Three important crop reports this week had traders showing their bullish expectations, and firming FOB offers at the Gulf and PNW underpinned cash as well.

Egypt set the tone early with their first tender in four weeks. They bought 300 TMT with 120 TMT coming from Russia, 120 TMT from Romania and 60 TMT from Ukraine. Average price paid was $246/MT CIF, up $8/MT from its last purchase. Basically, the price increase reflected higher world prices since mid-December.

Export sales weren’t expected to be big since it was a holiday week. Good thing because they were even lower than the lowest expectations. At only 131 TMT, it sets us back in achieving USDA’s expectations, but it was a holiday week, so it shouldn’t set a trend.

Crop reports on Friday included the monthly supply/demand report; quarterly stocks report and the winter wheat plantings report. Most eyes were on the plantings report. USDA reported that all winter wheat plantings were 30.8 million acres, a bit higher than the average trade estimate but still down 1% from 2019 and down 5% from 2018. It is the second lowest on record.

For hard red winter wheat, Montana saw the largest drop at 400,000 acres, a decline of 20% as poor weather shut down the planting season earlier than normal. Total plantings were 1.6 million acres.

Colorado saw a 250,000-acre drop as they planted 1.9 million, down 12%. Nebraska had record low plantings of 900,000 acres, down 170,000 from last year (down 16%). South Dakota was down 160,000 at 700,000, a drop of 19%. Kansas and Oklahoma were unchanged at 6.9 million and 4.2 million respectively. Texas was up 400,000 at 4.9 million, an increase of 9%.

Soft red winter wheat acres were up 8% over last year at 5.64 million, a surprise since the trade was looking for a slight decline. White wheat plantings were down 4% at 3.37 million acres.
The quarterly stocks report show wheat supplies as of December 1, 2019 at 1.83 billion bushels, 80 million less than the average estimate and down 170 million from 2019, a drop of 9%.
The supply/demand report had just minor changes. USDA increase feed use by 10 million bushels, lowered seed use by 1 million and took ending stocks down 9 million to 965 million bushels. Average farm price was left unchanged at $4.55 per bushel.

World numbers were slightly changed. Australia’s production was reduced .5 MMT and exports dropped .2 MMT. Russia’s production was down 1 MMT with exports lowered 1 MMT as well. The EU’s production was increased .5 MMT with exports raised 2 MMT. Ukraine’s exports were increased .5 MMT.

Market reaction to the reports was choppy at first, then they resumed their upward push. KW and Chicago both reached last week’s spike high and then stalled. The upward momentum appears to be intact and seasonals suggest strength into early February. World stocks are still record high and the coming crop is projected to be another record as well. Record production is expected from Russia, the world’s price setter; and the Russian farmer is sitting on a great deal of last year’s crop. We expect they will pick up selling in the next few weeks.

For these reasons, I think it is wise to be selling into this rally. I look for pressure as we get into Feb and through the spring. I also look for Kansas City to gain against Chicago as the plantings report shows fundamentals are changing. There could be some strength in March for KW as the market tries to encourage farmers to leave planted acres intact and not substitute with another crop.

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