Market Perspective

Recently wheat markets have been trying to find a bottom along with the rest of the grain markets. The driving force behind the sell-off that began in December has been the rally in the U.S. Dollar which recently reached 11 year highs. Instability around the world and steady economic growth in the U.S. have combined to once again make the Dollar the standard for the rest of the world. As a result, commodities in general and grains in particular have felt the negative effects of a stronger U.S. Dollar. Investors continue to exit commodities or even establish short positions in anticipation of the continuing rally in the U.S. Dollar. The rally in the U.S. Dollar has taken a pause in the past two weeks and that has given grain and petroleum markets a chance to bounce off multi year lows. The Dollar is definitely due for some kind of correction at the very least and that should be supportive for the grains.

Fundamentally the picture is brighter for wheat moving forward. Despite the fact that USDA raised world ending wheat stocks in its February Supply Demand Report by two million metric tons versus last month’s estimate, next year’s wheat carryovers are expected to be down significantly. Both Russia and the Ukraine are forecast to have lower wheat production. The Russian economy is a mess and not getting any better. Farmers are having trouble getting financed and there are some estimates that at least 25% of the banks in Russia may go under. On top of that, winterkill has also taken a toll on the Russian wheat crop. Conditions in the Ukraine are better but still their wheat production will be lower than last year. Early estimates call for a 15 million metric ton decrease in world wheat production for this year.

In the U.S., winter wheat conditions in the Southern Plains have slipped from 60% good to excellent in November to under 50% in the most recent individual state crop progress reports. The winter wheat crop there is in need of more rain and recent temperatures have been much above normal. The first USDA Crop Ratings Report will be released on April 6.

Locally the recent rains and above normal temperatures have been very beneficial to the winter wheat crop. Producers are still trying to assess how many, if any, winter wheat acres will have to be reseeded. There are still quite a few bare spots out there, especially west of Odessa, and interest in spring seed is definitely picking up with the warmer weather. There is still a long ways to go until harvest and long term weather forecasts are giving mixed signals, but overall the crop out in the field looks better now than it did a year ago.

As for the old crop, there is still probably between 15% to 20% left to buy from farmers. USDA is projecting a 33 million bu white wheat carryover. That is only a 13.5% stocks to use ratio. This compares to stocks to use ratios of over 35% for all the other classes of wheat. White wheat sales continue to clip along with current prices not discouraging any buying interest yet. This sets the stage for a very interesting, and possibly explosive rally in the spring.

One more note – Protein for white wheat has been a big issue this year with the vast majority of our customers requiring lower protein white wheat. If the weather this spring turns hot and dry, there is a good chance the white wheat market will see standard protein scales similar to Hard Red Winter and Dark Northern Spring except the discounts will be for the higher protein and the premiums for lower protein white wheat. If the weather turns wetter and colder, protein may not be an issue, but this year, more than most, fertilizer application should be carefully monitored.