Market Perspective

On Tuesday the USDA released its December Crop Production Report. On the wheat side, the only overall adjustment made to the U.S. table from last month was an increase in wheat exports of 10 million bu. That raised U.S. wheat carryovers to 575 million bu for next year. The market had been looking for a drop in U.S. wheat carryovers due to an increase in wheat exports, but it did not get it in this report.

As for the world supply/demand situation, the report increased world wheat production by 5 million metric tons due to a 4 million metric ton increase for Canada and a 1 million metric ton increase for Australia. World ending carryovers were increased 4.3 million metric tons from last month.

Wheat futures broke through technical support levels overnight heading into the report on Tuesday and when the report came out the sell off continued. Speculative funds still hold a record short position of over 500 million bu in Chicago. Wheat futures were able to bounce off their session lows. It will be interesting to see if the funds can continue to pressure the market lower because the export business for wheat remains steady and basis levels remain firm.

The report did show a decrease in U.S. corn and soybean carryovers from the previous report. In the case of corn, a 50 million bu increase for ethanol production and a 50 million bu increase in exports resulted in a 95 million bu decrease in ending stocks, which are now projected to be 1.792 billion bu. Soybean carryovers were also lowered due to a 25 million bu increase in exports with ending stocks now estimated at 150 million bu for next year. Both of those markets had rallied going into Tuesday's report. When the report came out, both were met with some profit taking, and prices backed down to close slightly lower at the end of the session.

In terms of the big picture, the question for wheat is, "will the export demand continue at its present pace in spite of higher world production?" If so, the USDA will have to begin to adjust for that in its future reports. For white wheat there are two questions. The first is, "will the steady demand from our regular customers continue," and so far, so good. The other question is, "how much damage did the winter wheat crop suffer in the PNW after the near zero temperatures and the wind we experienced last Friday?" So far, most people are optimistic but winter is not over and whatever damage has been done will not become evident until the weather warms and that may be a few months away.