For weeks, most wheat watchers assumed that 2018 winter wheat plantings would be down significantly from last year. The market was ready for bullish wheat numbers from Friday’s onslaught of data in the winter wheat plantings, quarterly stocks and the monthly supply/demand reports from USDA.
While winter wheat plantings were, indeed, down, it wasn’t nearly as much as expected. USDA projected all winter wheat plantings at 32.608 million acres, 192,000 acres less than last year. The average estimate was to be down 1.5 million from last year. Hard red winter acres were down the most, as expected, at 23.1 million acres, 700,000 less than last year but 800,000 more than the estimate. Soft red, however, was surprisingly higher at 5.98 million, 370,000 higher than last year and 430,000 more than the average estimate. White winter wheat acreage was pegged at 3.56 million, up 140,000 over last year and 130,000 more than the average trade guess.
Kansas and Texas led the way higher at plus 400,000 and plus 500,000 acres respectively. Interestingly, Oklahoma was down 400,000. Montana dropped 350,000. For soft red acres, almost all the producing states had an increase, while white wheat states were largely unchanged.
The quarterly stocks report showed all wheat stocks on Dec 1 at 1.87 billion bushels, up 21 million over the estimate but down 200 million from last year, reflecting the lower production and ending stocks from 2016.
Next, we got a look at the monthly supply/demand report. USDA increased imports by 5 million bushels, reduced feed usage by 20 million bushels, left exports unchanged and raised end stocks by 29 million bushels to 989 million. Stocks/use ratio sits at 47.4% and the anticipated price range was left unchanged at $4.50-4.70.
World wheat production was increased 1.8 MMT to 757 MMT (a record), and world end stocks were down fractionally to 268 MMT (also a record). Some of that came from a drop in beginning stocks as USDA factored in Australia’s downward adjustment of 3.1 MMT to their 2016 crop to 30.3 MMT. For 2017, they kept Australia’s production at 21.5 MMT, but lowered exports 1.5 MMT to 16.0 MMT. Russia’s 2017 production was increased by another 2.0 MMT to an astounding 85.0 MMT, and exports increased 1.5 MMT to an also astounding 35.0 MMT, far exceeding the US’s anticipated exports of 26.5 MMT.
The market’s reaction to the bearish plantings report wasn’t pretty. A higher trade before the report quickly turned south, and the selling was consistent through the end of the session. The day ended with an outside day lower, and prices look poised to test the contract lows around the $4.00 level in both Chicago and Kansas City. Buying has been solid near those levels, and I would expect it will again if prices get that low.
Near term fundamentals didn’t really change much, and traders point to the recent cold snap and increasing dryness across the plains as reasons why wheat harvested acres could be a much different story than planted acres, and thus prices should be well supported at the contract lows. We also see cold weather moving into the Black Sea region that could finally slow down Russian exports. While that
region has virtually no snow cover because of unusual warmth this winter, it isn’t expected to get cold enough to threaten un-hardened winter wheat.
US exports this past week were terrible at only 71 TMT, worse than last week’s marketing year low. Hopefully, it was a function of slow holiday demand. With the sharply lower US dollar and the break in futures, the US should find itself in a much more competitive position than just a week ago, when we were just $3/MT higher than Russia’s sale to Egypt.
Russia has dominated the world export trade, with Jan – Nov 2017 wheat exports reported to be 28.8 MMT, 25% higher than 2016. Back-to-back record production years, improved infrastructure, and transportation subsidies have allowed them to really ramp up sales. Normally, they slow down exports in the first few months of the year, but we can expect they will be back in force in the spring.
Seasonally, wheat prices tend to work their way higher into early Feb. We’re clearly not off to a good start this year. Downside price risk should be limited at these levels; upside potential is there but will likely also be limited until we see how the crop looks as it breaks dormancy.