The USDA’s plantings intentions report was released last Friday night.
Trends were as expected, with higher soybean acres, and lower corn and wheat acres. Surprises included the extent of the lift in soybean acreage, and the fall in land to be planted to wheat and corn. Spring wheat acreage was 297,000 acres below last year, and durum acreage down 408,000 acres, to leave total wheat acres 8.16 per cent lower than last year.
The US winter wheat crop was down 9.4 per cent. Quarterly grain stock numbers had stocks in general coming in above expectations. Soybean stocks were well above industry expectations. Corn stocks were also higher than expected, but the number does not appear consistent with domestic use for feed and ethanol, and the level of exports. Wheat stocks were a little above expectation.
The futures markets reacted by pulling value off soybeans, which flowed over to canola and rapeseed futures. Corn and wheat futures rallied after release of the reports.
The first of the USDA national crop condition ratings will be released this week. The condition of the US winter wheat crop will be down year on year, based on the current state-based reports.
This should already be factored into the market, along with recent rains that may have stabilised crop conditions. Weekly condition reports should have an impact on prices in the next few weeks, based largely on rainfall events and whether they stabilise the crop, or allow conditions to improve.
Any short-term decline in conditions should be supportive of futures prices.
Another factor is the large net sold (short) position being held by the funds, particularly for wheat. If they find themselves on the wrong side of a rising market and exit, there could be a sharp rally in futures prices. Some analysts are predicting a rally during the early summer period in the US, partly driven by the lower acres and lower expected production.
Elsewhere, production forecasts for the EU have been lowered a little. The EU crop estimate has been reduced by 800,000 tonnes, but still well ahead of last year. The Black Sea region has also suffered a frost event.
A combination of factors could deliver a rally ahead of the US harvest. A series of ordinary US crop condition reports, combining with weather issues from the Black Sea (or possibly the EU) are needed. If that triggers a buyback by the funds, a sharp rally could result.
Be prepared by having prices in mind for selling wheat swaps or making physical sales. The opportunity to make a move may be tight. A second chance later in the year could only be expected if there’s an actual problem with wheat in North America, the EU or the Black Sea.
