The saying goes, “If you want to make God laugh, tell him your plans.” I think we can now say the same thing goes for the USDA.
The Aug. 10 USDA supply and demand report was a report that will remain in my memory forever. The data released surprised many in the agricultural world as the numbers released were so far misaligned from what many in the industry had expected. Let’s focus on what the USDA report had to say for the wheat market.
Looking at the domestic report for wheat, the “all wheat” production number was pegged at 1.739 million bushels, which was higher than the average trade estimate of 1.713 million. While this “all wheat” number was indeed lower than the July 2017 USDA report data, the August number of 1.739 million was viewed as not enough of a production loss to make the market rally.
Specifically looking at hard red winter production, the August USDA report suggested that production is at 758 million bushels, which was unchanged from the July report. The spring wheat production number was announced at 402 million bushels, down from the July number of 423 million bushels, however, trade was expecting a number closer to 393 million bushels.
Domestic ending stocks for the 2017-18 season are now expected to be near 933 million bushels, which is a touch lower than the July number of 938 million bushels. Pre-report estimates, however, were projecting ending stocks to come in at 907 million bushels. Looking for a bright side, domestic ending stocks are getting smaller (and remember, when ending stocks are getting smaller, prices can have a tendency to rally), just not at the pace many were hoping for. And one addition bright spot to think about down the road is that the USDA has not yet accounted for the abandoned acres of spring wheat in the Dakotas and Montana. That data will be released in the coming months. Many feel the abandoned acres number will show spring wheat production to be even smaller than the USDA is accounting for now, which could lend a potential boost to prices this fall.
Globally speaking, the USDA tweaked the balance sheet to make both old crop and new crop ending stocks larger. Prior to this report, global ending stocks were finally on the verge of stalling out and getting smaller. However, in the Aug. 10 USDA report, global ending stocks of wheat for the 2016-17 crop year were increased to 258.6 million bushels, up from 258.1 million bushels the month prior. The 2017-18 crop year ending stocks were also increased, up to 264.7 million bushels, up from the July report number of 260.6, and well above pre-report expectations of 256.7 million bushels.
The increase in ending stocks was due to a larger wheat crop in Russia and Ukraine. The wheat crop in Russia is supposed to now be a record 77.5 million ton crop, which is up 5 million tons from last year. The crop in Ukraine is also expected to be larger. The Canadian crop is expected to be smaller, down 1.9 million tons to 26.5 million tons due to drought conditions.
The August data released continues to keep the bears in control for a few more weeks. With the USDA raising global carryout unexpectedly in the August Supply and Demand report, prices will continue to stay under pressure with the next “hope” of a rally for the wheat complex overall, tied to the spring wheat crop when the abandoned acres are tallied into the production total. And keep in mind, the seasonal price tendency for December Kansas wheat futures, is that December Kansas wheat futures usually bottom in the early September timeframe, and can work higher toward Thanksgiving. Be on your toes for pricing opportunities in the months ahead.
(Source – http://www.hpj.com/opinion/wheat-carryout-continues-to-grow/article_f69c52e0-88ea-11e7-a1d8-6bea8cfc952f.html)