Tuesday, June 18, 2013

Condition data raise doubts over US wheat revival

by Agrimoney.com

The revival in expectations for the US wheat harvest stalled after winter crops were shown to be deteriorating in many major states, while delays to spring sowings stoked ideas of abandoned acres.

The US Department of Agriculture kept at 31% its estimate of the domestic winter wheat crop rated in "good" or "excellent" health as of Sunday, with the proportion in "poor" or "very poor" condition rising one point to 43%.

While the Michigan soft red winter wheat crop showed a sharp improvement in condition, the hard red winter wheat crops in Colorado - where USDA scouts noted that "conditions have been consistently dry", and that 9% of sowings have been left for pasture - deteriorated by three points to 10% rated good or excellent.

Oklahoma hard red winter wheat dropped by one point in the top two condition categories too, with the crop in Kansas, the top wheat-producing state, remaining stable.

'Truly amazing'

The lack of improvement surprised investors who have marked down wheat prices this month in part on reports of better-than-expected US crops, besides the pressure from harvest, which in ramping up supplies tends to weigh on prices.

In fact, the winter wheat harvest, at 11% complete, was well behind the average pace of 25% by now too, thanks to delays to crop development from a cold spring, but also some rain setbacks even where crop is ripe.

In Kansas, where 21% of wheat is normally already in the barn, farmers are expected to begin harvesting in earnest "within the next three-to-five days", USDA scouts said.

Anecdotal reports so far have been of better-than-expected harvest results.

Oklahoma State University, for instance, reported that yields at its test site in Chattanooga ranged from 12-36 bushels per acre, a result university small grains specialist Jeff Edwards termed "truly amazing" given "the presence of severe drought and three major freezes".

'Surprise disappointment'

Indeed, the USDA last week raised by 23m bushels to 2.08bn bushels its estimate for the domestic harvest saying that "higher yield [estimates] boost forecast production of hard red winter wheat in the southern and central Plains and soft red winter wheat across the South and Midwest".

However, while that upgrade weighed on wheat prices, the overnight crop progress data sparked some recovery, seeing Chicago wheat for July regain 0.9% to $6.86 ½ a bushel as of 06:00 local time (12:00 UK time).

Paris wheat for November, which hit a 13-month low of E195.00 a tonne on Monday, recovered ground to E197.50 a tonne, while the London November contract bounced 1.8% from a 10-month low to hit £168.00 a tonne.

At Phillip Futures, Joyce Liu said that the overnight wheat data were "a surprise disappointment because crop weather has improved substantially since March and the most recent June Wasde report showed higher forecast of winter wheat production".

A UK trader told Agrimoney.com: "It is early days for anyone to be drawing conclusions from the US wheat harvest yet.

"People should not make too much of a few positive results, even if they are from a credible source, which they are often not."

'Many acres won't get planted'

The wheat market gained further underpinning from US data on spring wheat plantings showing that rain-beset US farmers had 8% of their crop yet to plant as of Sunday, compared to a typical 3%, with the ideal seeding window passed

"Many acres won't get planted because of the persistent moisture received the past few weeks," said USDA scouts in North Dakota, the top US spring wheat-growing state, where 86% of crop was sown as of Sunday, 10 points behind the usual pace.

Brian Henry at Minneapolis-based broker Benson Quinn Commodities, said: "I'd be surprised to see much additional progress."

However, the disappointment in area was in part offset by a sharp improvement in the condition of spring wheat, of which 68% was rated in good or excellent health, up six points on the week, if still behind the 76% a year before.

The Minneapolis spring wheat market, where the benchmark September contract was up 0.6% at $7.86 a bushel, is also receiving some pressure from better planting conditions in Canada, a major spring wheat grower.

Indeed, with better harvest prospects, Canadian producers are proving "willing to sell old crop supplies", Mr Henry noted.

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