Ripe wheat Iakov-Kalinin/Thinkstock

Wheat Outlook - Rain and grain

Best hope for rally could be January USDA report.

Corn and soybeans aren’t the only numbers in play when USDA releases its Jan. 11 reports. Weather that slowed corn and soybean harvest also delayed winter wheat seeding. There’s a strong correlation between seeding rates and the amount of “prevent plant” acres farmers claim. Only 95% of winter wheat fields were planted in USDA’s final Crop Progress report for 2018 at the end of November, suggesting acreage could be 2 million lower than initial expectations.

If USDA confirms that trend with its first survey of acreage Jan. 11 it could be enough to trigger at least a modest rally that could provide pricing opportunities on remaining 2018 inventory and expected 2019 production.

Otherwise, all that rain and snow improved soil moisture dramatically. Just 10% of winter wheat fields and 24% of spring wheat fields entered winter in drought. Nearly half those areas were in drought at some point during the winter of 2017-2018. Rain doesn’t always make grain, but it helps.

The El Nino cycle could also be a factor this year. The warming of the equatorial Pacific is expected to be over by summer. If that happens it could hurt spring wheat yields. But whether the El Nino ends or stays in place, its presence over the winter suggests improved chances for above normal winter wheat yields.

Overseas developments could also be important. U.S. exports got off to a sluggish start in the first half of the marketing year. USDA said “don’t worry,” expecting Russia to slow down on sales, improving U.S. prospects in the second half of the season. If they don’t, more wheat could be left over ahead of the summer harvest, making rallies more difficult.

I expect USDA to raise its forecast of 2018 carryout due to weaker exports, but the agency may again resist. Even though Egypt has started buying U.S. soft red winter wheat, Russia’s supplies still appear more than adequate. The weak ruble keeps prices very strong there, an incentive for sellers to move as much as they can.

The Russian crop is rated a little worse than a year ago, with dryness focused in the Volga region north of the Black Sea. Quality issues in the region remain a concern, but big buyers like Egypt are focused on price, especially with the country’s buying agency lagging behind on its payments. Slowing world economic growth could be another concern headed into 2019 that could keep demand from rising.

December can be a turning point for new crop wheat contacts. Ability to hold November lows can generate additional gains, turning the trend bullish through the winter. That could be the key trend to watch that could trigger outright fund buying.

USDA could be too optimistic about its forecast for old crop demand, causing carryout estimates to rise in January reports, and perhaps in the Dec. 11 outlook too.

Fall rain and snow decreased the amount of wheat ground in drought areas, improving chances for good yields in 2019.

The U.S. winter wheat crop went into dormancy in better shape than a year ago despite problems growers had getting fields seeded that could reduce acreage.

Slow wheat exports continue to lag behind the pace forecast by USDA for the 2018 crop.

New crop winter wheat futures still have potential to turn bullish, but must hold November lows in December.


Download a complete version of the outlook with extensive charts and analysis using the Download button at the end of this report.

More from Farm Futures:

Corn Outlook
Soybean Outlook

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 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.

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