Uncertainty abounds with respect to US high protein wheat production – and it’s this uncertainty that’s triggered this week’s volatility. It’s difficult – or impossible – to measure the extent of damage cause by last week’s frigid temps and heavy snows across the W Plains.
In the tables above, AgResource presents HRS & HRW balance using various production scenarios. Trend yield in spring wheat is possible yet, but unlikely in HRW. And even assuming trend yield, hi pro quality wheat inventories in the US look to sharply decline in 2017/18. Assuming worst case scenarios, combined US HRS & HRW end stocks will fall to 495 Mil Bu, down 280 Mil (35%) from 2016/17, and a rally in futures and cash price is forthcoming. High protein wheat supplies peaked in 2016/17, and now it’s a matter of gauging the extent of the decline in 2017/18.
AgResource does note that the best determiner of US wheat futures over time is combined major exporters’ supply & demand, rather than just isolating the US. For example, losing 200 Mil Bu in KS is equal to just 1% of major exporter production, and so weather across the whole of the Northern Hemisphere is key.
However, the point is that US high protein wheat balance sheets are unlikely to loosen, even assuming larger EU production, and so quality cash wheat prices in 17/18 are expected to rally. With there being potential for HRW cash prices to range from $4.25-5.50 in 17/18, vs. an estimated $3.85 in 16/17 a bearish outlook cannot be advised.
ARC suggests that end users extend forward coverage into early 2018 on modest breaks – particularly coverage of hi pro and durum wheat.
US spot HRW wheat could reach $5.00-5.40, basis spot, with any weather problem in the Black Sea kicking in a much more dramatic rally with US all wheat seeding at a 100 year low. Wheat should also gain on corn .
