Market Insider

Looking for Both Black Soil and Higher Prices?

This week, the USDA announced that global ending stocks for 2017/18 would come in at 271.2 MMT. That’s a new record, and about a 2.3 MMT increase from the March figure.  It’s crazy to think that at a time that global consumption continues to rise, producers keep pumping all this wheat out of the ground.  We’re always looking for one country to blame when stocks rise. And we have one… Russia.

Russian wheat exports continue to surge at a strong pace thanks to a struggling Ruble. A weakened currency has made Russian wheat even more attractive.  Through the first ten months of the marketing calendar, exports have increased by more than 40% to a little more than 31 million tonnes.  Earlier this week, the USDA projected that Russian exports would come in around 38.5 MMT. This figure was a 1 MMT increase from the agency’s March estimate. It’s also an incredible 10 MMT higher than last year.

The USDA set 2017/18 US wheat ending stocks at 1.06 billion bushels. That was well above the 1.036 billion bushels pegged by analysts. The figure also surpassed the March WASDE figure of 1.034 billion bushels. Focusing on spring wheat, the USDA reported a increase in U.S. Hard Red Spring ending stocks from 185 million bushels in March to 190 million bushels in April. The agency stated that the U.S. will export 504 million bushels. That number was reduced by 5 million bushels from the March estimate. 

The Prospective Plantings report a few weeks ago said U.S. farmers will plant 12.6 million acres of spring wheat for the 2018/19 crop. That figure is 1.1 million acres higher than the average projections among analysts. But two weeks into April, there’s no shortage of snow on the ground in spring wheat areas. While last year’s drought fueled a sharp downturn in spring wheat supply, this year there’s too much (frozen) moisture. Last Monday’s report showed that spring wheat crop is 2% planted. The five-year average for this coming Monday’s report is 15%. Let’s just say right now that there isn’t any scenario where farmers have caught up that much this week.

The question moving forward is just how long these delays will last. The spring wheat window will slam shut in a few weeks, and weather forecasts over the next week suggest that farmers aren’t going to be seeding a lot of those fields that were planned for this season.  Higher prices in the plains for soybeans is making “The Switch” an attractive play right now. We’ll be looking for clues into just how many of those 12.6 million acres turn into corn and soybean acres over the next month.

On a separate issue, US President Trump has asked his people to look into the Trans-Pacific Partnership again, specifically asking for them to find out what it would take for America to get back in. If this would happen, it would likely undo some of the benefits that Australia and Canada have seen. Specifically, US wheat may become the go-to option for Japan again, over Canadian wheat or Australian options.

On that note, the latest weather reports show that much-needed rain is providing relief to the Australian crop at the right time.  Rain falling in Western Australia and how it'll help spring wheat acres there. Three months of consistent rain has improved the seeding process for Aussie farmers.

Overall, from a price direction standpoint, Mother Nature is starting to push on spring wheat and durum prices, as is a stronger Canadian Loonie. Ultimately, there is definitely some last-second musical chairs that are playing out as grain markets and Mother Nature is playing hardball about acute price direction. 

To growth, 

Brennan Turner 
President & CEO | FarmLead.com