Bottom Line: Last Friday, news services reported that Informa pegged 2018 winter wheat seedings at 31.093 Mil Ac, down from last year’s 32.383 Mil Ac. Over the last 13 years, Informa’s December projection of US winter wheat seedings has been too high 77% of the time. If Informa’s estimate is too high again this year, it will probably have a lot of company. Ninety-one percent of the time the industry’s average estimate for USDA’s January Winter Wheat Seedings Report has been too high. While this is a surprising phenomenon, it appears that wheat futures prices are NOT impacted when the trade estimates are wrong.
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Informa is the first of many estimates that will be released in the few weeks. Based on history gleaned from news reports (for the years 2005-2018), and which are believed to be accurate, it appears that Informa’s winter wheat seedings estimates tend to be larger than the USDA January Winter Seedings Report (to be released January 12). Over the last 13 years, Informa’s estimate has been too high 77% of the time. In the years that the estimate was too high, the average error was 3.9%. If that error is applied to Informa’s 2018 estimate for winter wheat seedings (31.093 Mil Ac), that suggests that USDA’s actual estimate would be 29.88 Mil Ac.
Informa isn’t the only analytical firm that has trouble getting winter wheat seedings right. Since 1983, the average of trade expectations has been below the USDA’s figure 91% of the time. In addition, 53% of the time, the trade’s average estimate has been BELOW the low end of the range of trade estimates. Of all the USDA reports that we have tracked over the last 36 years, we can’t find any other USDA report where the industry’s track record for accuracy has been so consistently wrong. The chart below plots the discrepancy between the USDA’s report and trade expectations in in percent.
The chart below plots the discrepancy between the USDA’s report and trade expectations in Mil Ac. Last year, winter wheat seedings were 1.82 Mil Ac below the average of industry expectations.
Even though the wheat seedings report has often “surprised” the market, history strongly suggests that wheat prices do not react to “surprises” in any logical or consistent manner. The chart below shows the percentage change in the KC wheat futures price a WEEK after the report was released vs the percent difference between the average trade estimate and the Winter Wheat Seedings Report’s figure. The plot suggest that changes in wheat futures is NOT correlated with “surprises” in the Seedings Report.
There could be many reasons why wheat futures show no logical response to “surprises” in the Seedings Report. For one thing, generally speaking, at this time of year, the market’s attention is usually focused on “old-crop” fundamentals. At this time of year, changes in wheat futures seem to be mostly a function of changes in outside markets (e.g. corn futures, soybean futures, the value of the US$, etc.). Lastly, increasingly over the last 10-13 years, the US has become less and less relevant as a factor in determining world wheat prices.
