US Wheat Crop Conditions Languish, Japanese Grain Imports Not Affected

Posted on March 15, 2011

The USDA released its domestic wheat outlook report and crop conditions continue to deteriorate in the Central and Southern plains due to the extended lack of soil moisture in the regions western growing areas.

In the Central Plains of Kansas, 25% of the wheat crop rated good to excellent, down from  27% a month earlier and 60% a year earlier.  The percentage of the Kansas wheat crop rated poor to very poor has increased to 40%, up from 37% a month ago and 8% a year ago at this time. This is at least the third consecutive month the poor to very poor rating has increased.  In Nebraska the situation remains essentially unchanged but with a slight bias towards deterioration. Forty percent of the current wheat crop rated good to excellent which is slightly lower than last months rating of forty-two percent and a rating of forty-nine percent a year ago.

In the southern plains wheat crop condition ratings  have leveled off after a dizzying fall last month. In Oklahoma, 22 percent of the wheat crop rated good to excellent which is a scarce improvement from 21 percent a month earlier and doesn’t come close to the 65 percent rating of one year ago. This month 41 percent of the wheat crop rated poor to very poor which is another scant improvement from a month ago when the rating was 40 percent. However, a year ago the rating was a paltry 7 percent. In Texas 18% of the current wheat crop rated good to excellent which is slightly lower than last months rating of 20%. A year ago the rating was 65%. The percentage of the crop that rated poor to very poor rose to 56% from 51% a month ago and only 18% a year ago.

Just when you were ready to trade in your massive wheat silo for a hybrid we find a sliver of hope for this years crop. Conditions in two states that grow soft red winter wheat (SRW) — Illinois and North Carolina — are better than a year ago. In Illinois thirty-six percent of the wheat crop rated good to excellent compared to twenty-eight percent a year ago.  Eighteen percent of the Illinois crop rated poor to very poor, an improvement over last years rating of twenty-three percent.  North Carolina showed the biggest improvement with fifty-nine percent of their wheat crop rated good to excellent compared to only seventeen percent a year ago. Only eight percent of their crop rated poor to very poor compared with forty-seven percent a year ago.

Domestic Supply and Demand

As was the case last month, total projected supply and demand is at 3,294, and 1,176 million bushels, respectively. This is unchanged from the previous month. Exports are down by 25 million bushels due to increases in global supply estimates.  As is almost always the case, there were changes within specific classes of wheat.

Wheat Class Projected
Hard Red Winter 1,404M 1,094M Increase in exports of 5M bushels which was offset by a reduction of 3M bushels of domestic food use. There wase was a 10M bushel export increase last month.
Hard Red Spring 838M 606M For the 2nd straight month we have a 20M bushel decline in exports. There was a marginal decline in domestic food use. Ending supplies declined by 22M bushels.
Soft Red Winter 504M 337M Increase in exports of 5M bushels.
White 364M 281M Decrease in exports of 10M bushels which erased last months increase. 
Durum 182M 133M Increase in domestic food use of 4M bushels, offsetting that gain is a decline in exports of 5M bushels.

Wheat futures are trading lower in part due to concerns about Japans port infrastructure after last weeks earthquake. Japan is Asia’s largest importer of wheat as well as the number one importer of corn and number three importer of soybeans. Grains shipments, however, have not yet been affected after the quake. Nobuyuki Chino, president of Unipac Grain said, “Of Japan’s some dozen major ports where bulk carriers or tankers can dock, only two are damaged, Imports of grain to Japan therefore  are not affected.”

Disclosure: I have March bull credit spreads in MOS, whose movement is in part correlated with wheat prices.

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