Wheat Market Outlook
Vol. 21 No. 6 - January 27, 2012 - PDF Version
Market Situation
Crop Condition. Texas wheat crop conditions improved this week with the percent rated good +1, fair +5, and poor -6. The crop condition index score went up 7 points to 271. This compares to 257 at this time last year. The soil moisture index is about the same as last year.
El Nino Southern Oscillation Update. Sea surface temperatures in the critical region for La Nina development were -1.1°C from normal this week, 0.1°C cooler than last week. While the current La Nina event may extend through early spring, the current forecast shows we may be bottoming out with a return to neutral conditions as early as April.
World Wheat Estimates. The International Grains Council released revised world wheat production and use numbers January 19th. The latest from IGC puts world wheat production at a record 690 mmt, up 7 mmt from November. Larger crops in the southern hemisphere account for most of the increase but larger crops are forecast for China and Kazakhstan as well. Total wheat consumption is estimated at 681 mmt, up from 679 mmt on increased feed use. World carryover stocks are projected at 204 mmt, up from 200 mmt in the November forecast raising the stocks to use ratio to 30%. This compares with 29.5% in November and 29.3% in 2010/2011.
Commitment of Traders. Speculative fund positions in the grain markets are mostly unchanged this week with the decrease in net long contracts held by hedge funds offset by increases in those contracts held by index funds. Repositioning since the release of the January Crop Report two weeks ago shows hedge funds -81,234, index funds +14,956 and the price index -16.25 points.
| Contracts | Tuesday January 17 | Tuesday January 24 | Net Change |
| Open Interest | 2,998,442 | 3,073,340 | 74,898 |
| Net Long Hedge Funds | 38,584 | 25,054 | -13,530 |
| Net Long Index Funds | 747,300 | 763,246 | 15,946 |
| Price Index | 737.38 | 765.00 | 27.62 |
Wheat prices have followed corn and soybeans higher the last couple of weeks, climbing back above where we were before the January crop report. The string of 6 consecutive higher closes was broken today.
| Futures | Friday January 20 | Friday January 27 | Net Change | Percentage Change |
| Mar'12 KC Wheat | 6.6700 | 7.0000 | 0.3300 | 4.95% |
| May '12 KC Wheat | 6.7575 | 7.0875 | 0.3300 | 4.88% |
| Difference | 0.0875 | 0.0875 | 0.0000 | |
| Nearby % Carry March to May | 73% | 73% | 0% | |
| Jul'12 KC Wheat | 6.8250 | 7.1625 | 0.3375 | 4.95% |
| Jul'13 KC Wheat | 7.2800 | 7.5600 | 0.2800 | 3.85% |
Market Strategies
2012 Wheat Marketing Plan. The seasonal price index for the July Kansas City wheat futures contract is a steady slope downwards in years in which the world stocks to use ratio for wheat is on the rise. To this point in the season, the price of the July 2012 contract has followed this trend fairly closely, even getting a bump in prices in January.
I have priced 40% of my expected (or insured) 2012 wheat crop so far and we are approaching the time period in which I will price another 20%. Again, I will use technical trading signals to time sales, relying on moving averages. Specifically, when the
Daily Closing Price < 4-day moving average < 9-day moving average < 18-day moving average.
Mark Welch
Texas AgriLife Extension Economist
401 C Blocker Building
TAMU 2124
College Station, Texas 77843
Tel. (979)845-8011
Fax. (979)845-4906
JMWelch(at)ag.tamu.edu
The opinions and recommendations expressed are solely those of the author and are intended for educational purposes only as part of the Texas AgriLife Extension Service. Texas AgriLife Extension Service assumes no liability for the use of this newsletter. Educational programs of the Texas AgriLife Extension Service are open to all people without regard to race, color, sex, disability, religion, age, or national origin. The Texas A&M University System, U.S. Department of Agriculture, and the County Commissioners Courts of Texas Cooperating