Wheat market tries to get its mojo back Tighter global supplies should boost U.S. export hopes By Bryce Knorr, Senior Grain Market Analyst In a world without noise, the wheat market would be ready to rally. Even in today s climate filled with trade war fears, futures are showing the strength we ve expected for a while. Whether this rally will last or fall victim to the same type of selling seen before is the make-or-break question, and likely not only for wheat. Wheat s ability to move beyond tariffs would help other markets slowly get back to normal. So growers of corn, and maybe soybeans too, should pay attention. The outlook for U.S. prices improves even as estimates of production here are on the rise. Winter wheat crop ratings and yield estimates continue to creep higher. Spring wheat ratings started to show a little deterioration, with more likely on the way if drier forecasts hold, but yield losses should be offset by increased acreage reported June 29 by USDA. Indeed, the government should increase its estimate of production by nearly 75 million bushels July 12. Higher June 1 leftover stocks from the 2017 crop marketing year due to weaker feed usage and exports also put a little more bearish situation on supply. But lower world production increase U.S. export potential, and more importantly, global prices. The crop in France was hit by wet weather, which has prices there trading near the highest level in three years. Dry weather is cutting spring wheat yields from northern Germany into the Baltics, and also hurt winter wheat production out of the Black Sea. While none of these stories is an outright disaster, production in Australia could be if drought from the burgeoning El Nino continues. The upside for wheat isn t unlimited futures may do well just to get back up to highs put in earlier this year. But that could allow growers to get wheat priced higher, as well as get started on 2019 hedges. Winter wheat cash markets are also showing strength at long last for growers on the Plains. That s started to reduce carries, which were running nearly 7.5 cents a month for hard red winter wheat futures to May. Carry is still profitable for winter wheat producers with on-farm storage into 2019 and year-round markets. But rising prices likely will suck more out of spreads if the rally continues. Growers who hedge now should cover the upside with call options, say selling a December SRW $6.20 call to pay for a $5.20. HRW suffered more than SRW on the pullback in prices, as lack of deliverable supply eliminated carry between July and September. Demand for hard wheat should be better, which could again send Kansas premium to Chicago. The outlook for Minneapolis likely will key off production in Canada. There are dry spots north of the border, too, but potential still looks decent. Lack of higher protein competition out of Northern Europe and Australia should benefit North America most, especially if dryness starting to develop in Argentina spreads.
Wheat Supply & Demand Table USDA Bryce 2016 2017 2018 2017 2018 Area Planted 50,154 46,012 47,300 46,012 47,821 Harvested 43,890 37,586 38,900 37,586 38,336 Yield 52.6 46.3 47.0 46.3 49.6 Beginning stocks 976 1,181 1,080 1,181 1,086 Production 2,309 1,741 1,827 1,741 1,901 Imports 118 155 135 150 130 Supply, total 3,402 3,076 3,043 3,072 3,117 Food 955 964 965 954 953 Seed 61 62 62 62 64 Feed and residual 157 70 120 70 91 Domestic, total 1,167 1,096 1,147 1,086 1,108 Exports 1,055 900 950 900 1,030 Use, total 2,222 1,996 2,097 1,986 2,138 Ending stocks 1,181 1,080 946 1,086 979 Average price $3.89 $4.75 $5.10 $4.31 $5.02 Stocks to use ratio 53.1% 54.1% 45.1% 54.7% 45.8% Ave. Nearby Futures Chicago $5.18 Kansas City Hard Red $5.32 Minneapolis $5.90 Top Third of Price Range 2018 Chicago $5.38 to $5.78 Kansas City Hard Red $5.52 to $5.91 Minneapolis $5.90 to $6.45
Beginning Stocks Production Total Supply Domestic use Exports Total Use Ending stocks Soft Red Winter 08-09 55 614 702 332 199 531 171 09-10 171 404 607 256 109 366 241 10-11 242 237 508 228 109 337 171 11-12 171 458 662 313 163 477 185 12-13 185 420 623 306 193 499 124 13-14 124 565 709 311 285 595 114 14-15 113 455 581 295 133 428 153 15-16 154 359 531 255 120 375 157 16-17 157 345 535 228 92 320 215 17-18 215 292 523 211 90 301 223 18-19 BK 223 325 564 244 147 391 173 White 08-09 37 255 300 100 136 236 64 09-10 64 237 310 88 143 231 79 10-11 80 275 362 95 182 277 85 11-12 85 314 407 127 216 343 64 12-13 64 259 330 92 175 267 63 13-14 63 268 339 117 171 289 50 14-15 50 224 284 91 146 217 67 15-16 67 221 294 73 147 220 74 16-17 74 286 367 98 163 262 105 17-18 105 258 371 96 195 291 81 18-19 BK 81 253 342 92 150 242 100 Durum 08-09 8 84 130 81 24 105 25 09-10 25 109 171 84 40 124 47 10-11 35 106 173 95 43 138 35 11-12 35 50 122 70 27 97 25 12-13 25 82 143 91 29 120 23 13-14 23 62 129 77 30 107 22 14-15 22 53 120 58 36 94 26 15-16 26 84 143 86 29 116 28 16-17 28 104 162 102 24 126 36 17-18 36 55 141 85 20 105 36 18-19 BK 36 84 170 77 42 119 50 Hard Red Spring 08-09 68 512 625 273 210 483 142 09-10 142 548 731 282 214 497 234 10-11 234 570 832 309 339 647 185 11-12 185 398 619 223 245 468 151 12-13 151 505 699 302 232 534 165 13-14 165 490 733 317 247 564 169 14-15 169 556 791 307 271 578 213 15-16 212 568 828 304 252 556 272 16-17 272 493 807 251 321 572 235 17-18 235 385 694 269 225 494 200 18-19 BK 200 606 880 268 287 554 326 Hard Red Winter 08-09 132 1,035 1,167 472 448 919 248 09-10 248 920 1,175 420 370 790 385 10-11 385 1,018 1,404 403 616 1,018 386 11-12 386 780 1,167 452 398 850 317 12-13 317 1,000 1,339 615 381 996 343 13-14 343 747 1,109 426 449 872 237 14-15 237 738 984 421 270 391 294 15-16 294 830 1,130 458 226 685 446 16-17 446 1,082 1,533 488 455 943 589 17-18 589 750 1,347 436 370 806 541 18-19 BK 541 635 1,184 452 333 785 399
Illinois Winter Wheat Yields 78 76 74 72 70 68 66 64 62 60 10/29 12/29 02/28 04/30 06/30 Last year This year 85 Ohio Winter Wheat Yields 80 75 70 65 60 55 50 45 10/29 11/29 12/29 01/29 02/28 03/31 04/30 05/31 06/30 Last Year This Year
Kansas Winter Wheat Yields 55 50 45 40 35 30 25 10/29 11/29 12/29 01/29 02/28 03/31 04/30 05/31 06/30 Last year This year 40 Oklahoma Winter Wheat Yields 35 30 25 20 15 10/29 11/29 12/29 01/29 02/28 03/31 04/30 05/31 06/30 Last Year This Year
Texas Winter Wheat Yields 36 34 32 30 28 26 24 22 20 10/29 11/29 12/29 01/29 02/28 03/31 04/30 05/31 06/30 Last year This year 46 South Dakota Winter Wheat Yields 44 42 40 38 36 34 32 30 10/29 11/29 12/29 01/29 02/28 03/31 04/30 05/31 06/30 Last Year This Year
55 Nebraska Winter Wheat Yields 50 45 40 35 30 10/29 11/29 12/29 01/29 02/28 03/31 04/30 05/31 06/30 Last Year This Year 60 Montana Winter Wheat Yields 55 50 45 40 35 30 25 20 10/29 11/29 12/29 01/29 02/28 03/31 04/30 05/31 06/30 Last Year This Year
52 U.S. Winter Wheat Yields 51 50 49 48 47 46 45 44 43 42 10/23 11/13 12/4 12/25 1/15 2/5 2/26 3/19 4/9 4/30 5/21 6/11 7/2 Last Year - National Model State-by-State yields National Yield Model "Last Year -- State Model" 50% Ratings accuracy improves modestly percentage of yield variance captured by weekly winter wheat ratings 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 4/7 4/14 4/21 4/28 5/5 5/12 5/19 5/26 6/2 6/9 6/16 6/23 6/30 Source: Farm Futures
55 Projected U.S. Spring Wheat Yields 53 51 49 47 45 43 41 39 37 35 5/21 6/4 6/18 7/2 7/16 7/30 8/13 8/27 9/10 Previous year State Model U.S. Model
Total Ending Stocks of Major Exporters 120,000 100,000 80,000 60,000 40,000 20,000-1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Includes U.S., Argentina, Australia, Canada, EU and FSU 400 350 300 250 200 150 100 50 0 Total Wheat Exports (Year to Date) 35% 30% 25% 20% 15% 10% 5% 0% Total Commitments % of USDA Forecast
Accumulated Wheat Export Shipments 70 60 50 40 30 20 10-7% 6% 5% 4% 3% 2% 1% 0% Total Shipments % of USDA Forecast 300 250 200 150 100 50 0 Hard Red Winter Wheat Exports (Year to Date) 70% 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast
180 160 140 120 100 80 60 40 20 0 Soft Red Winter Wheat Exports (Year to Date) 70% 60% 50% 40% 30% 20% 10% 0% Total Commitments % of USDA Forecast 100 90 80 70 60 50 40 30 20 10 0 Hard Red Spring Wheat Exports (Year to Date) 40% 35% 30% 25% 20% 15% 10% 5% 0% Total Commitments % of USDA Forecast
White Wheat Exports (Year to Date) 70 60 50 40 30 20 10 0 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Total Commitments % of USDA Forecast Weekly Wheat Export Inspections 35,000 30,000 Thousand bushels 25,000 20,000 15,000 10,000 5,000 0 2018-19 2017-2018 5-Yr. Avg. J J A S O N D J F M A M SOURCE: USDA
Chicago December Futures 615 590 565 540 515 490 465 440 415 390 365 340 315 290 1/6 3/6 5/6 7/6 9/6 11/6 Bull Non-Bull Dec. 2018 Dec-17 Kansas City December Futures 600 575 550 525 500 475 450 425 400 375 350 1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1 10/1 11/1 Bull Years Non-Bull Years Dec. 2018
Minneapolis December Futures 700 650 600 550 500 450 400 350 Feb Mar Apr May Jun Jul Aug Sep Oct Nov December 2018 Bull Years Bear Years
150000 100000 Commitment of Traders - Chicago Wheat $7.00 $6.50 50000 $6.00 net position in contracts 0-50000 -100000-150000 $5.50 $5.00 $4.50 $4.00 $3.50 nearby futures -200000 1/15 3/15 5/15 7/15 9/15 11/15 1/16 3/16 5/16 7/16 9/16 11/16 1/17 3/17 5/17 7/17 9/17 11/17 1/18 3/18 5/18 $3.00 Source: CFTC Index funds Hedge funds Futures 100000 Commitment of Traders - K.C. Wheat $7.00 80000 $6.50 net position in contracts 60000 40000 20000 0-20000 -40000-60000 $6.00 $5.50 $5.00 $4.50 $4.00 nearby futures -80000 1/15 4/15 7/15 10/15 1/16 4/16 7/16 10/16 1/17 4/17 7/17 10/17 1/18 4/18 $3.50 Source: CFTC Index funds Hedge funds Futures
25000 20000 15000 Commitment of Traders - Minneapolis Wheat (Futures and Options Combined) $8.00 $7.00 Contracts 10000 5000 0-5000 -10000-15000 1/14 7/14 1/15 7/15 1/16 7/16 1/17 7/17 1/18 $6.00 $5.00 $4.00 $3.00 Large traders Nearby Futures