Wheat Market Outlook

Vol. 18 No. 84 - October 23, 2009 - PDF Version

Market Situation

In addition to the outside markets that have boosted grains this week (see today’s Feed Grain Market Outlook), wheat has received some news that impacts the fundamental outlook. Reports out of Australia have been mixed in their expectations of 2009 wheat production. In September, ABARE (the Australian Bureau of Agricultural and Resource Economics) published their estimate of 22.7 mmt. USDA, in the October S & D, estimate production at 23.5 mmt. Rabobank in Australia is very close to ABARE’s numbers at 22.8 mmt. The question appears to be if relatively good growing conditions in the west will compensated for a poor crop in the east. In October, regional crop estimates have raised the production expectations in West Australia and South Australia by 2.3 mmts combined while lowering the estimate in New South Wales by 2.5 mmt. The past week has been dry in both areas. And with harvest still a few weeks away, the crop remains vulnerable to heat and drought.

Australian Rainfal Analysis; Week ending October 23, 2009

In addition, Ukraine, southern Russia, and Kazakhstan are dry this fall. USDA reports:

Conditions for a portion of Ukraine’s 2010/11 winter grains have been alarmingly unfavorable due to persistent dryness. Weather data and satellite imagery indicate that both surface and subsurface moisture during August and September were the lowest in recent years. Although the situation has improved following rainfall in late September and early October, the earlier dryness hampered the emergence and establishment of winter crops in significant areas of southern and eastern Ukraine. Subsurface moisture reserves remain significantly below normal.

Source: Foreign Agricultural Service, USDA, October 21, 2009

Satellite Derived Surface Wetness Anomalies - Former Soviet Union

U.S. wheat exports were strong this week. Trade expectations were for weekly export sales of 15 to 18 million bushels. USDA reported on Thursday, sales of 23 million bushels, the third highest of the marketing year.

U.S. Wheat Export Sales Commitments

The first condition ratings of the Texas wheat crop were released this week. Just under 50 percent of the 2010 crop is rated as good or excellent. This is about the same level where we began the 2009 crop before dry conditions set in. With the influence of the current El Nino weather pattern, precipitation across Texas should be above normal this winter.

2010 Texas Wheat Crop Condition Rating

Many areas of Texas did receive rain this week. The 7-day measurement by the National Weather Service shows ½ to 1 inch across many areas with bands of rainfall of 2 to 3 inches.

Current 7-Day Observed Precipitation

July Kansas City wheat prices are up a $1/bushel over the last few weeks. Prices traded above $6.00 this week for the first time since August 5.

Futures	Friday October 16	Friday October 23	Weekly Net Change	Weekly Percentage Change
Dec ‘09 KC Wheat	5.1050	5.4950	0.3900	7.64%
July ‘10 KC Wheat	5.4850	5.8825	0.3975	7.25%
July ‘11 KC Wheat	6.0700	6.4525	0.3825	6.30%

Wheat Marketing Strategies

Seasonal price gains are expected in July Kansas City wheat at this time of year, but the strength of the current rally is probably coming from more than fundamentals. As in the feed grain market, money flows tied to the overall economy and investor attitudes have more to do with what is happening than whether or not in rained last night in Australia. As such, these prices may reverse quickly. Even so, I think fundamentally prices were too low and I am not interested in selling until there are signs the uptrend has reversed. My projected breakeven price on 2010 wheat is $5.84 per bushel (total costs), $5.33 if I graze. With a basis of -$0.60, that equates to a futures price of $6.44 and $5.93.

July 2010 KC Wheat and Marketing Plan

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}