The US all wheat crop is getting smaller, and this is especially true of the spring wheat crop across the Northern Plains. This week’s Drought Monitor is expected to show an expansion in moderate drought conditions in the Dakotas. Crop conditions fell sharply through the week ending Sunday, and already there are signs that HRS yield will be substantially below trend if the US weather pattern does not change in the next few weeks.
US spring wheat GD/EX was pegged at just 55% on Monday, which actually is tied for the lowest on record as of early June.
The graphic attached shows the correlation between July 1 ratings and yield, and should ratings stay unchanged in the next 30 days, one can expect spring wheat yield to be 8-15% below trend.
It’s a bit premature to lower yield to such a degree, but it is time to ponder what reduced yield potential means for the 2017/18 HRS balance sheet?
The table at left displays Supply & Demand using various yield scenarios, beginning with trend (47 Bu/acre, which would also be record large). Most importantly, notice that end stocks fall 50 Mil Bu even if trend yield was achieved, and so the high protein wheat market already is shifting to a more bullish trend. A yield of 40 Bu/Acre would allow end stocks to fall to 118 Mil Bu, down 89 Mil (43%) from 16/17, which is also less than half of what end stocks were in 16/17.
The other issue is the lack of protein seen in the S Plains HRW crop so far. Without adequate protein, HRW/HRS blending will be more difficult, and so domestic HRS consumption won’t decline as much as expected in spite of a short crop. There’s a real risk that wheat with protein of 13% of more will need to be rationed via higher price.
Spring wheat looks to be the bullish stalwart of 2017. Like all raw material markets, spring wheat cash prices correlate strongly with stocks/use. Again, even assuming trend yield, our work suggests a season average HRS price of $5.50/Bu, vs. an estimated $4.75 in 2016/17. End stocks of 141 Mil imply a season average price of $6.75. End stocks of 118 Mil, and stocks/use of 19%, imply a season average of more than $7.00 in 17/18.
The 10-day forecast is arid and rather hot across the Dakotas, and it’s likely that spring wheat ratings in the next 1-2 weeks fall to 45-48% GD/EX, which if realized will further lower yield potential. At what price, or what spread, rations available US spring wheat supplies. The market is unlikely to break until a pattern change is included in the near term weather forecast.