For most of the public and for many traders too, wheat is wheat. The stuff bread is made from.
But as wheat growers know, the grain comes in all sorts of classes. End users are highly selective about protein and other milling qualities. That’s what makes a cracker different from a dumpling or a roll or a bowl of spaghetti.
Wheat’s diverse nature is a blessing and a curse. In recent years, it’s been a curse, because the crop is grown just about everywhere. But right now fears about high protein wheat have thrown a lifeline to the broader market at a time when it’s critically needed. Though the action focused on spring wheat, winter wheat also benefited, so far avoiding the usual slump into harvest.
But markets are markets. They don’t go up forever. While high protein wheat may be in relatively short supply in the coming year, that alone isn’t enough to keep other classes from rising, or even holding firm.
USDA made another big cut to the rating of the crop Monday, slashing another 3 bpa off yield potential. Based on projections from these ratings, average spring wheat yields are around 43 bpa. That’s more than 3 bpa below normal, but only enough to cut 30 million bushels or so off production.
The government actually raised its forecast of winter wheat production in its June 9 report; the first official spring wheat projection won’t come out until July. But barring more reductions in coming weeks, all-wheat production in the U.S. might still come in close to 1.8 billion bushels, enough to meet domestic demand and a modest export program.
Futures for hard red winter wheat should benefit from the need for higher protein grain. Strong protein premiums are being noted as combines roll in Kansas. But the market doesn’t want the 11% specified for delivery against futures, so the real action is in the cash market.
Our competitors around the world are also paying attention. Growers in Canada are wrapping up seeding a little later than normal with good soil moisture in most areas. Germany hasn’t seen great weather but conditions appear to have stabilized after a short crop last year helped trigger the initial rally in spring wheat. Production of prime hard wheat in Australia looks off to a good start too.
I’ve recommended being 55% priced on 2017 spring wheat. Growers should be ready to add to sales as yield prospects permit, with options a possibility.
Winter wheat growers still have good carry to sell. July 2017-May 2018 HRW futures tightened about a half cent per month but are still paying a premium of around 6.5 cents a month, good for on-farm storage. Winter wheat spreads reflect the reality that there are adequate supplies. Balance sheets for all class should tighten, but not enough to warrant a huge rally unless spring wheat yields really disappoint. In the meantime, make sure to get some protection on 2018 production. Seasonal trends suggest December winter wheat futures are at a turning point, either pulling back or continuing their rally into September.
For the complete version of this outlook, including supply and demand tables and graphics, along with price charts, click the “Download” button below.
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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 Market Review on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat futures 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.