The News & What it Means – Plenty of Unknowns Still Ahead for Wheat

By John DePutter & Dave Milne – January 9, 2018

 

The news:

There is a view building that weather conditions are going to be an issue for the US wheat crop this year.

– Queensland Country Life, Jan. 9, 2018

 

What it means:

The weather on the US central Plains hasn’t been ideal. It has been supporting prices, although gains have been small.

 

Bitterly cold temperatures experienced on the Plains early in the New Year certainly may have caused some winterkill issues in those areas where snow cover is minimal and where temperatures fell the most heavily.

 

However, it is not until the spring, when crops begin to break dormancy, that the true extent of any winterkill damage is made clear. And even then, the experience of years past is that the actual damage tends frequently to be less than initially feared.

 

Meanwhile, it’s dry in much of the key wheat production zones. But that too, is hard to assess in terms of its impact on yields.

 

Weather rallies this time of year often come and go quickly. The weather story still has several chapters ahead.

 

USDA on deck

Wheat traders will soon be talking a little less about the weather and more about a big USDA report. The report, due Friday, will contain a winter wheat acreage estimate. It’s widely expected to show that American winter wheat planted area will decline further from 2017’s already multi-decade low.

 

If the report comes in well above or below trade guesstimates, it could shock the market.

 

Spring weather matters most

Let’s not forget that the weather in the spring is always much more important in terms of determining winter wheat yields, regardless of how poor fall or winter conditions turn out to be, or where precisely the seeded area stands. It is yields more so than planted area that is often the bigger factor in ultimately determining the level of production.

 

The market might build in a so-called “premium” on ideas of weather problems, but April-May is when the yield potential, or lack thereof, becomes clearer.

 

World wheat supplies remain heavy

Meanwhile, the world has plenty of cushion just in case the US comes up short.

 

The USDA’s December supply-demand update pegged world wheat ending stocks for 2017-18 at a record high 268.42 million tonnes, up from 255.33 million and 241.44 million the previous two years. Traders will no doubt get another reminder of those heavy global supplies in Friday’s USDA reports as well.

 

The bottom line

Wheat markets have seen one weather scare, related to extremely cold weather along with concerns about dry conditions. The impact of the scare has been minor to date, as prices are still weighed down by hefty global supplies.

 

Next up, is Friday’s USDA report. We’ll see if it helps futures make more headway to the upside or turns them back down.

 

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