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USDA Gives a Bullish Wheat Outlook

The roller-coaster price action continued this week, down early and wiping out the gains from last week, then supported by a bullish supply/demand report on Thursday.

USDA offered a bullish outlook for world wheat fundamentals, offsetting a somewhat bearish US wheat outlook. They increased planted acres in accordance with the June 29 plantings report. They also increased even more the harvested acres, a bearish surprise to the market. In addition, they increased yields per acre by .6 bu/acre to 47.5 bu/acre, as winter wheat yields in the plains have been better than expected. We are also expecting a whopper spring wheat crop.

USDA increased total US wheat production by 54 million bushels over last month to 1.881 billion on an increase in spring wheat and a slightly decrease in winter wheat. They increased export projections by 25 million to 975 million bushels, which is up 74 million over last year. End stocks were bumped up 39 million from last month to 985 million bushels, down 115 million from last year or 11%.

That said, it was world numbers that goosed bullish enthusiasm. World wheat production was downgraded by 8.4 million metric tons (MMT) from last month to 736 MMT, a drop of almost 22 MMT from last year and a 4-year low. Production was cut for most of the major exporters: the EU was down 4.4 MMT, Australia down 2.0 MMT, Russia down 1.5 MMT, Ukraine down 1.0 MMT. Even China’s production was lowered 1.0 MMT.

It’s important to note that on Friday, the day after USDA’s report, the Russian Ag Minister released their own estimate of Russian production that was 2.6 MMT lower than USDA. I think it’s only a matter of time before we see similar downgrades to the rest of the Black Sea region, as well as Europe where Germany and the UK have had challenging weather all season.

Major exporter stocks/use are now slightly below the 2007/08 marketing year, and yet the market can barely get off its face. Corn and soybeans keep digging lower as well. The self-inflicted trade war clearly isn’t helping any of the markets, particularly grains and oilseeds, of which soybeans are front and center. Large traders and funds have had an attitude adjustment, turning from bullish to bearish in the Ag markets.

With the rest of the Northern Hemisphere harvest gearing up, it may be a few weeks yet before wheat is able to break free of the negative sentiment. But the longer term outlook for wheat (and corn) looks positive. With increasing talk of El Nino developing this fall, one could look for another challenging production season from Australia as well, which obviously would enhance the bullish potential.


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