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Weekly Wheat Review

Wheat market struggles, doesn't surrender

Published on: Apr 14, 2014

While corn and soybeans got bullish news from USDA April 9 – and couldn't hold rallies – the news for wheat had little encouragement. Not surprisingly, prices struggled. But the wheat market isn't dead, not yet, at least.

Seasonal trends suggest one more pop is possible into May, when USDA releases its first survey of how fields are actually faring after a stressful winter. The first nationwide crop ratings released last week mirrored the declines shown early at the state level, with yield potential dropping more than 5 bpa since the last Crop Progress report at the end of November. This suggests a winter wheat crop of less than 1.5 billion bushels, with total production barely above 2 billion.

Wheat market struggles, doesnt surrender
Wheat market struggles, doesn't surrender

Still, that might be enough. If there's enough wheat from other exporting nations, prices don't have to rally. And right now the jury's still out about whether much of the 2014 crop around the world is in jeopardy.

Conflicting signals emerged in the northern hemisphere. Soil moisture maps look dry from Germany through Eastern Europe and into Ukraine and Russia, though South Russia looks good. Yet reports from those areas are mostly upbeat. Ukraine and Russia got some precipitation last week, though totals appeared a bit disappointing.

China's crop appears in a similar boat. Conditions were tough for seeding last fall, and didn't seem to improve all that much over the winter. The country's main central wheat belt has picked up some moisture this spring, but the northern half of the growing region, at the least, still looks dry. But demand at auctions for government reserves is crashing, amid reports that conditions are good.

South Australia and the country's southeast got good rains recently, just in time for the start to planting. Not a whole lot of wheat is grown in Queensland, which was suffering from drought that the big cyclone won't erase. Western Australia now looks like the big trouble spot, where a lot of the country's exportable supply is grown. Longer term, prospects for development of an El Nino this summer are increasing that could threaten a larger area of the country with dry conditions.

With so much uncertainty, we recommended pricing 50% of winter wheat and 40% of spring wheat at levels above Revenue Protection base prices. The next challenge is what to do at harvest, when RP is no longer covering the downside. Storing wheat short-term could run into challenges if the grain will be shipped by rail, as there's potential for old crop corn to clog the pipeline. So be careful unless storage is available into November/December. Logistical problems could increase carry that make storage hedges work again.

USDA won't breakdown class by class supply and demand tables until July, but I've started including them in the full PDF version of this report. Soft red winter wheat stocks could tighten, while hard red winter wheat could see looser carryout, unless problems on the Plains intensify.

Download the complete Weekly Wheat Review report using the link below.

Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.

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