Wheat

Summary:

The wheat market has two separate stories. World wheat supplies, not production but supplies, will decline this year. Russia is just one component of that. But within that story is one that shows a larger US supply. The Wheat Quality Council confirmed that story this week. Our long term upside target for price, $6.74 for July Chicago, has now been met.

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The annual Wheat Quality Council tour of Kansas wrapped up yesterday. Their three day tour of the state estimated winter wheat production of 290.4 million bushels. This was just over the 287.8 five year average rate. That five year average included the recent two years of problems. Their 46.5 bpa yield estimate is over the 44.2 five year average as well as USDA's own view from May, 38.0. The winter wheat crop in the Plains is not going to a bin buster nor a new all-time record. Those numbers would be from years past. But the message here is that we have divorced ourselves a bit more than the prior two poor years.

Argentina's ag ministry estimates winter wheat planting at 6.15 million hecatares, over last year's 5.9. Argentina is a relatively small wheat producer at 12 - 22 million tonnes in recent years. The trade monitors them closely as they export 75% of production. They are typically #5 - #7 on the top exporter list. They plant mid-May through July and harvest mid-November through mid-January.

Germany's national statistics agency estimates last fall's winter wheat plantings at 2.6 million hectares, -8.3% from the prior year. Germany is the EU's second largest producer after France. USDA estimates total wheat production for the EU at 132 million tonnes, 134 last year.

The US winter wheat harvest will be about 20% complete by mid-June, 45% complete at the start of July and 70% complete mid-July. There is still a remaining weather impact on yields but it is soon becoming limited ahead of harvest. The Climate Prediction Center sees the Plains set for above normal temperatures in June. Moisture would run below normal for much of Texas but normal to above normal for Oklahoma through Nebraska. Soft red areas would see normal temperatures and above normal moisture. The prior summer weather forecast from the CPC would have suggested light yield concern for US spring wheat. This now only shows light dryness for Montana in July then Montana and South Dakota in August. Considering harvest in September, this is not a major threat.

The latest two week forecast for the hard red winter wheat belt, Texas through Nebraska, shows a clear uneven moisture distribution. The western halves of Texas up through Kansas have a 0.6 - 2.0 inch forecast. But the majority of the region is set for 1.8 - 5.0 inches. Soft red areas did see a reduced forecast yesterday, 1.3 - 2.6. But that is now back up to 2.0 - 4.9.

Russia has been a spotlight in recent days. For production we now have SovEcon down to 89.6 million tonnes and IKAR at 91. USDA, using different Crimea/Ukraine territory metrics, posted their first estimate at 88. This is down from 91.5 and 92.0 the prior two years.

The Russian Union of Grain Exporters surveyed 20 sources on likely export estimates this year. They see wheat exports at 49.6 million tonnes and total production of 89.6. USDA sees the current old crop exports at 53.5.

Spring wheat planting advanced from 47% complete to now 61%. This was just under the 63% expectation. The five year average, for comparison, is 48%. Current planting is the 16th best of the 30 year history of this data set.

Winter wheat ratings were unchanged from last week's 50% good/excellent condition. The trade expected 51%. The five year average for this week is 44%. Ratings at this time are not a great proxy for final yields. Historically this week's ratings only explain 29% of final yield variance. That improves to 41% on June 2.

The $6.74 upside target from our similar year studies, was finally filled for the July Chicago contract. It did not happen the way the plan suggested but the price was on target.

Chart: Wheat futures have lightly set back from recent new uptrend highs…Rich Nelson