Wheat Market Outlook
Wheat Market Outlook August 8, 2011 Volume 20, Number 54
Market Situation and Risk Management Strategies Thursday August 11 USDA will release updated crop production and world supply and demand estimates. While all U.S. wheat production is expected to be only slightly less than the July numbers (‐21 million bushels), the crop is down about 6% from 2010/2011. A much larger soft red winter wheat crop is keeping the totals up as production of the higher quality, high protein wheats is down. August 11 Crop Report, Pre-Report Trade Expectations 2011/2012 U.S. Wheat Production, million bushels Avg
Range
July
2010/2011
Annual Change
All Wheat
2,085
2,015-2,134
2,106
2,208
-5.57%
All Winter Wheat
1,483
1,400-1,505
1,492
1,485
-0.13%
Hard Red Winter
795
779-809
791
1,018
-21.91%
Soft Red Winter
457
446-465
458
238
+92.02%
White Winter
241
231-245
243
229
+5.24%
Other Spring
550
515-577
551
616
-10.71%
Durum
62
58-65
64
107
-42.06%
Spring wheat crop condition scores slipped lower in 4 of the reporting states this week, but overall the crop is expected to yield above average. The updated acreage number will be closely watched on Thursday.
2011 U.S. Spring Wheat Crop Condition Index by State CCI 500 450 400 350 300 250 200 150 100 Idaho
Minnesota 17-Jul
Montana 24-Jul
North Dakota 31-Jul
South Dakota 7-Aug
Washington
1
Wheat Market Outlook August 8, 2011 Volume 20, Number 54
Wheat export sales this marketing year appear on a straight line projection to meet USDA’s estimated total. 2011/2012 U.S. Wheat Export Sales Commitments Mil bu Projected MY Total
1,200
1,000
800
Cumulative Net Sales
600
400
200
Weekly Net Sales 0
Sales as of July 28, 2011, reported August 4, 2011
But in a normal year, we sell about 50% of the marketing year’s wheat by the end of September. We are facing increased competition out of the Black Sea region as Russia has reentered the export market. As a marketing year proportion, monthly sales for July were about half the 5‐year average, less than 6% versus 13% normally. If this trend continues, it seems likely that USDA would lower the 2011/12 export projection. This is especially important for the U.S. wheat market since exports are the most dynamic of the use categories.
Proportional Monthly Wheat Export Sales Commitments: 5-year Seasonal Index (2006/07 to 2010/11)
0.20
0.16
0.18 0.14
0.12 0.10
+1 Std Dev
0.08 0.06
0.04 2011/12 Export Sales Commitments
0.02
0.00 Jun
Jul
-1 Std Dev
5-year Avg
Aug Sep Oct Nov Dec Jan Feb Mar Apr May
2
Wheat Market Outlook August 8, 2011 Volume 20, Number 54
Today’s Texas Crop Progress and Condition report indicates just how dry the topsoil moisture is across the state as we near time for fall sowing. Every major wheat production district has top soil moisture that is short or very short for at least 98% of its acreage. % of Acreage with Short and Very Short Top Soil Moisture, 8/7/2011 TEXAS WHEAT PRODUCTION 1-N 50% 1-S 6% 2-N 10% 2-S 13% 3 4% 4 12% 5-N 0% 7 3% 8-N 1% Other 1%
98%
100% 99%100% 100%
100%
98% 100%
99% 82% 99% 100% 96%
100% 71%
Source: USDA and NASS
Today’s update of the El Nino/Southern Oscillation index shows the continuation of neutral conditions through most of this fall. The revised average of model predictions indicates we will be at the threshold for a return to La Nina in the August/September/October time frame and be under the influence of a full‐fledged La Nina this winter. This week’s model revisions deepen the predicted readings compared to last week.
3
Wheat Market Outlook August 8, 2011 Volume 20, Number 54
Oceanic Nino Index (ONI) °C
ENSO neutral conditions are present Neutral conditions extend at least through summer 2011 La Nina conditions predicted to return by late fall 2011
2.0 1.5
Actual Measurements
Predicted
1.0
El Nino
0.5
Neutral 0.0
La Nina
-0.5
Last week
-1.0
Current
-1.5 -2.0
El Niño/Southern Oscillation (ENSO) Diagnostic Discussion, August 8, 2011 http://www.cpc.ncep.noaa.gov/products/analysis_monitoring/enso_advisory/
Last Friday’s Commitment of Traders showed open interest was up about 94,000 contracts or 3% in the wheat, corn, and soybean markets. Net long positions by hedge funds increased by about 3,000 while index funds were down about 2,000. Net speculative investment was holding steady as Washington struggled with at least a short term resolution of the debt problem. But rather than calming outside markets, the debt ceiling and budget debate has undermined investor confidence. This Friday’s report will provide some measure of bullish sentiment in the speculative commodity investment community in the face of growing uncertainty in outside financial markets.
Contracts Open Interest
Tuesday July 26 3,224,897
August 2 3,318,637
Net Change 93,740
Net Long Hedge Funds
254,411
257,473
3,062
Net Long Index Funds
789,385
787,221
‐2,164
Price Index
851.58
858.31
6.73
4
Wheat Market Outlook August 8, 2011 Volume 20, Number 54
Wheat, Corn, and Soybeans Speculative Investment Net long contracts
¢/bu
1,000,000
1,000
800,000
800
600,000
600
400,000
400
200,000
200
0
0
‐200,000
‐200
Index Funds
Hedge Funds
Price
Source: CFTC, positions as of August 2, 2011 reported August 5, 2011
Grain prices across the board were lower today with the turmoil in many financial markets. July KC wheat tried to break out its recent trading channel on the upside (trading above $8.50 for two days) but could not hold those gains. Today’s action broke out of the channel on the downside, below $8.00 for this first time since July 12th. Futures Sep ‘11 KC Wheat
Monday August 1 7.7125
Monday August 8 7.5525
Net Change ‐0.1600
Percentage Change ‐2.07%
Jul ’12 KC Wheat
8.1475
7.9525
‐0.1950
‐2.39%
Jul ’13 KC Wheat
8.2475
8.0850
‐0.1625
‐1.97%
5
Wheat Market Outlook August 8, 2011 Volume 20, Number 54
Market Strategies I have already priced 20% of 2012 production and await more information on global fundamentals before pricing more. If ending stocks are projected to increase for 2011/2012, I will be more aggressive selling wheat this fall. If stocks are projected to continue to decline I will follow a more seasonal pricing pattern with the bulk of sales in late winter (February to March).
July 2012 KC Wheat and Marketing Plan ¢/bu
1000
Early Season Price Rally / Early Crop Conditions
Emerging from Dormancy/Late Season Conditions Harvest
900
800
Sold 20% at $8.34 on 3/14/11
700
500
6/1/2011 6/13/2011 6/23/2011 7/6/2011 7/18/2011 7/28/2011 8/9/2011 8/19/2011 8/31/2011 9/8/2011 9/16/2011 9/24/2011 10/2/2011 10/10/2011 10/18/2011 10/26/2011 11/3/2011 11/11/2011 11/19/2011 11/27/2011 12/5/2011 12/13/2011 12/21/2011 12/29/2011 1/6/2012 1/14/2012 1/22/2012 1/30/2012 2/7/2012 2/15/2012 2/23/2012 3/2/2012 3/10/2012 3/18/2012 3/26/2012 4/3/2012 4/11/2012 4/19/2012 4/27/2012 5/5/2012 5/13/2012 5/21/2012 5/29/2012 6/6/2012 6/14/2012 6/22/2012 6/30/2012 7/8/2012
600
Mark Welch Texas AgriLife Extension Economist 401 C Blocker Building TAMU 2124 College Station, Texas 77843 Tel. (979)845‐8011 Fax. (979)845‐4906
[email protected] The opinions and recommendations expressed are solely those of the author and are intended for educational purposes only as part of the Texas AgriLife Extension Service. The author and Texas AgriLife Extension Service assume no liability for the use of this newsletter. Educational programs of the Texas AgriLife Extension Service are open to all people without regard to race, color, sex, disability, religion, age, or national origin. The Texas A&M University System, U.S. Department of Agriculture, and the County Commissioners Courts of Texas Cooperating
6
Market Situation and Risk Management Strategies Thursday August 11 USDA will release updated crop production and world supply and demand estimates. While all U.S. wheat production is expected to be only slightly less than the July numbers (‐21 million bushels), the crop is down about 6% from 2010/2011. A much larger soft red winter wheat crop is keeping the totals up as production of the higher quality, high protein wheats is down. August 11 Crop Report, Pre-Report Trade Expectations 2011/2012 U.S. Wheat Production, million bushels Avg
Range
July
2010/2011
Annual Change
All Wheat
2,085
2,015-2,134
2,106
2,208
-5.57%
All Winter Wheat
1,483
1,400-1,505
1,492
1,485
-0.13%
Hard Red Winter
795
779-809
791
1,018
-21.91%
Soft Red Winter
457
446-465
458
238
+92.02%
White Winter
241
231-245
243
229
+5.24%
Other Spring
550
515-577
551
616
-10.71%
Durum
62
58-65
64
107
-42.06%
Spring wheat crop condition scores slipped lower in 4 of the reporting states this week, but overall the crop is expected to yield above average. The updated acreage number will be closely watched on Thursday.
2011 U.S. Spring Wheat Crop Condition Index by State CCI 500 450 400 350 300 250 200 150 100 Idaho
Minnesota 17-Jul
Montana 24-Jul
North Dakota 31-Jul
South Dakota 7-Aug
Washington
1
Wheat Market Outlook August 8, 2011 Volume 20, Number 54
Wheat export sales this marketing year appear on a straight line projection to meet USDA’s estimated total. 2011/2012 U.S. Wheat Export Sales Commitments Mil bu Projected MY Total
1,200
1,000
800
Cumulative Net Sales
600
400
200
Weekly Net Sales 0
Sales as of July 28, 2011, reported August 4, 2011
But in a normal year, we sell about 50% of the marketing year’s wheat by the end of September. We are facing increased competition out of the Black Sea region as Russia has reentered the export market. As a marketing year proportion, monthly sales for July were about half the 5‐year average, less than 6% versus 13% normally. If this trend continues, it seems likely that USDA would lower the 2011/12 export projection. This is especially important for the U.S. wheat market since exports are the most dynamic of the use categories.
Proportional Monthly Wheat Export Sales Commitments: 5-year Seasonal Index (2006/07 to 2010/11)
0.20
0.16
0.18 0.14
0.12 0.10
+1 Std Dev
0.08 0.06
0.04 2011/12 Export Sales Commitments
0.02
0.00 Jun
Jul
-1 Std Dev
5-year Avg
Aug Sep Oct Nov Dec Jan Feb Mar Apr May
2
Wheat Market Outlook August 8, 2011 Volume 20, Number 54
Today’s Texas Crop Progress and Condition report indicates just how dry the topsoil moisture is across the state as we near time for fall sowing. Every major wheat production district has top soil moisture that is short or very short for at least 98% of its acreage. % of Acreage with Short and Very Short Top Soil Moisture, 8/7/2011 TEXAS WHEAT PRODUCTION 1-N 50% 1-S 6% 2-N 10% 2-S 13% 3 4% 4 12% 5-N 0% 7 3% 8-N 1% Other 1%
98%
100% 99%100% 100%
100%
98% 100%
99% 82% 99% 100% 96%
100% 71%
Source: USDA and NASS
Today’s update of the El Nino/Southern Oscillation index shows the continuation of neutral conditions through most of this fall. The revised average of model predictions indicates we will be at the threshold for a return to La Nina in the August/September/October time frame and be under the influence of a full‐fledged La Nina this winter. This week’s model revisions deepen the predicted readings compared to last week.
3
Wheat Market Outlook August 8, 2011 Volume 20, Number 54
Oceanic Nino Index (ONI) °C
ENSO neutral conditions are present Neutral conditions extend at least through summer 2011 La Nina conditions predicted to return by late fall 2011
2.0 1.5
Actual Measurements
Predicted
1.0
El Nino
0.5
Neutral 0.0
La Nina
-0.5
Last week
-1.0
Current
-1.5 -2.0
El Niño/Southern Oscillation (ENSO) Diagnostic Discussion, August 8, 2011 http://www.cpc.ncep.noaa.gov/products/analysis_monitoring/enso_advisory/
Last Friday’s Commitment of Traders showed open interest was up about 94,000 contracts or 3% in the wheat, corn, and soybean markets. Net long positions by hedge funds increased by about 3,000 while index funds were down about 2,000. Net speculative investment was holding steady as Washington struggled with at least a short term resolution of the debt problem. But rather than calming outside markets, the debt ceiling and budget debate has undermined investor confidence. This Friday’s report will provide some measure of bullish sentiment in the speculative commodity investment community in the face of growing uncertainty in outside financial markets.
Contracts Open Interest
Tuesday July 26 3,224,897
August 2 3,318,637
Net Change 93,740
Net Long Hedge Funds
254,411
257,473
3,062
Net Long Index Funds
789,385
787,221
‐2,164
Price Index
851.58
858.31
6.73
4
Wheat Market Outlook August 8, 2011 Volume 20, Number 54
Wheat, Corn, and Soybeans Speculative Investment Net long contracts
¢/bu
1,000,000
1,000
800,000
800
600,000
600
400,000
400
200,000
200
0
0
‐200,000
‐200
Index Funds
Hedge Funds
Price
Source: CFTC, positions as of August 2, 2011 reported August 5, 2011
Grain prices across the board were lower today with the turmoil in many financial markets. July KC wheat tried to break out its recent trading channel on the upside (trading above $8.50 for two days) but could not hold those gains. Today’s action broke out of the channel on the downside, below $8.00 for this first time since July 12th. Futures Sep ‘11 KC Wheat
Monday August 1 7.7125
Monday August 8 7.5525
Net Change ‐0.1600
Percentage Change ‐2.07%
Jul ’12 KC Wheat
8.1475
7.9525
‐0.1950
‐2.39%
Jul ’13 KC Wheat
8.2475
8.0850
‐0.1625
‐1.97%
5
Wheat Market Outlook August 8, 2011 Volume 20, Number 54
Market Strategies I have already priced 20% of 2012 production and await more information on global fundamentals before pricing more. If ending stocks are projected to increase for 2011/2012, I will be more aggressive selling wheat this fall. If stocks are projected to continue to decline I will follow a more seasonal pricing pattern with the bulk of sales in late winter (February to March).
July 2012 KC Wheat and Marketing Plan ¢/bu
1000
Early Season Price Rally / Early Crop Conditions
Emerging from Dormancy/Late Season Conditions Harvest
900
800
Sold 20% at $8.34 on 3/14/11
700
500
6/1/2011 6/13/2011 6/23/2011 7/6/2011 7/18/2011 7/28/2011 8/9/2011 8/19/2011 8/31/2011 9/8/2011 9/16/2011 9/24/2011 10/2/2011 10/10/2011 10/18/2011 10/26/2011 11/3/2011 11/11/2011 11/19/2011 11/27/2011 12/5/2011 12/13/2011 12/21/2011 12/29/2011 1/6/2012 1/14/2012 1/22/2012 1/30/2012 2/7/2012 2/15/2012 2/23/2012 3/2/2012 3/10/2012 3/18/2012 3/26/2012 4/3/2012 4/11/2012 4/19/2012 4/27/2012 5/5/2012 5/13/2012 5/21/2012 5/29/2012 6/6/2012 6/14/2012 6/22/2012 6/30/2012 7/8/2012
600
Mark Welch Texas AgriLife Extension Economist 401 C Blocker Building TAMU 2124 College Station, Texas 77843 Tel. (979)845‐8011 Fax. (979)845‐4906
[email protected] The opinions and recommendations expressed are solely those of the author and are intended for educational purposes only as part of the Texas AgriLife Extension Service. The author and Texas AgriLife Extension Service assume no liability for the use of this newsletter. Educational programs of the Texas AgriLife Extension Service are open to all people without regard to race, color, sex, disability, religion, age, or national origin. The Texas A&M University System, U.S. Department of Agriculture, and the County Commissioners Courts of Texas Cooperating
6
