January 14 – Getting the Winter Wheat Blues after the January WASDE Report

2018 winter wheat prices slumped after the January 2018 WASDE report.

How is that possible with acreage declines and quality concerns of the 2018 winter wheat crop?

It’s probably a good thing for winter wheat traders that the markets aren’t open on Monday.

We need an extra day to wrap our heads around that January WASDE report.

Let’s start with the numbers from US.

• Quarterly Stocks: 1.874 billion bushels. That figure was above the average trade forecast of 1.849 billion bushels. It’s also 10% lower than the 2.077 billion bushels available a year ago on December 1st, 2016,.
Ending Stocks:  989 million bushels. That outpaces the average estimate of 959 million bushels and is more than 16% below 2016/17’s US wheat ending stocks of 1.181 billion bushels.
2018 Winter Wheat Acreage:  32.608 million acres. That’s’ well above the average trade estimate of 31.107 million acres but still the lowest since 1909. 

Ultimately, Friday’s report was a jackhammer in the wheat space.

I was down by the Chicago Board of Trade, and the head-shaking was contagious when this report emerged.

The larger carryout wasn’t that surprising.

With Russia’s harvest and aggressive exporting, the numbers just weren’t in farmers’ favor.

The USDA hiked its carryout figure from 960 million bushels to 989 million bushels.

The new stocks number was well ahead of analysts’ expectations.

In fact, the average analyst forecast called for a carryout of 959 million.

Winter Wheat Can’t Shake Russia

On the international front, 2017/18 production hit a new record of 757 million metric tonnes.

We can tie this number to Russia. The USDA hiked its Russian production total from 83 MMT to 85 MMT. With the world completely awash in wheat, it’s going to produce global ending stocks of 268 million metric tonnes, also a record. 

The USDA hiked the Russian carryout by another 5.5 MMT, a figure that easily offsets (and more) the 1 MMT drop in Australian ending stocks.

2018 Winter Wheat Acreage Ticked Higher… How?

But the question everyone has is on the acreage side.

All told, there are 32.6108 million acres of 2018 winter wheat planted. It’s the lowest number since 1909 (a good year for Pittsburgh baseball).

A simpler way of describing this though is that it’s the second lowest U.S. acreage on record.

Breaking it down by variety:

Hard Red Winter Wheat: 23.1 million acres. 3.5% more than the pre-report estimate, 1.4% below last year’s record low of 23.426 million acres, and thus, a new record low.
Soft Red Winter Wheat: 5.98 million acres. Nearly 8% more than the pre-report estimate and 4.3% below last year’s 5.733 million acres.
Winter Wheat Wheat: 3.56 million acres. That’s 3.6% more than the 3.435 million acres that the market was guesstimating before the report.

How did the USDA find an extra 1.3 million acres of 2018 winter wheat compared to the average analyst expectation of 31.31 million?

The silver lining is that we won’t know the impact of recent weather activity for at least another month or so.

As we explained in the 2018 Winter Wheat Outlook, we are going to need to be patient.

Through the end of February, we expect to see more headlines that are enthralled with the damage that negative weather is doing to the American winter wheat crop.

Quantity could arguably be going down, but we won’t know that for a few more months. 

A factor that will likely continue to put a premium on quality wheat with high protein content.

Nonetheless, on Friday, we saw all wheat markets fall significantly. Is it possible that the wheat bearish position (AKA short position in the futures markets) get even bigger?

Records are meant to be broken, aren’t they?


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About the Author
Garrett Baldwin

Garrett Baldwin is a content strategist and editor at FarmLead. He covers the global grain markets and public policy issues related to the agricultural industry. He is a graduate of the Medill School of Journalism at Northwestern University. He also holds a Master’s Degree in Economic Policy from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University, and an MBA in Finance from Indiana University.