'Abysmal' US crop rating sends spring wheat futures to two-year top

14.06.2017

Spring wheat futures jumped 5%, as fears for a return of dry weather to the main US growing area compounded worries prompted by an "abysmal" official rating of the crop, and raised the spectre of the drought year of 2012.

Minneapolis spring wheat futures for July touched $6.33 ј a bushel at one point, the highest for a spot contract since the first week of 2015, before easing back to close at $6.28 a bushel in late deals, a gain of 4.6% on the day.

The jump reflected US Department of Agriculture data overnight which rated at 45% the proportion of the US spring wheat crop in "good" or "excellent" condition – a 10-point decline, far more than the 8 point drop that investors had expected.

"Abysmal spring wheat crop conditions in yesterday's crop progress report are supporting the market," CHS Hedging said.

The rise in Minneapolis spring wheat futures is also being spurred by a near-2% jump in the Canadian dollar this week, after economic data prompted the country's central bank to signal the potential for an interest rate rise.

An appreciating Canadian dollar cuts the competitiveness of the country's, substantial, wheat exports, so boosting the appeal of US alternatives.

'Exacerbate drought conditions'

The slump in the US spring wheat condition rating to the lowest June figure on data going back to 1995, and the lowest in any year since 2006, reflected spreading drought in northern Plains.

Spring wheat ratings in top growing states and (change on week)

Minnesota: 93%, (-2 points)

Idaho: 73%, (-3 points)

Washington: 75%, (-8 points)

North Dakota: 43%, (-9 points)

Montana: 23%, (-25 points)

South Dakota: 13%, (-12 points)

US average: 45%, (-10 points)

Data show proportion of crop rated good or excellent, week ending June 4. Sources: USDA, Agrimoney

In South Dakota, where the good or excellent rating slumped to an all-time low of 13%, the USDA said that "highs in excess of 90 degrees Fahrenheit and strong winds continued to exacerbate drought conditions in many areas".

The Montana reading of 23% rated good or excellent was the lowest reading since 1997, and North Dakota's figure of 43% the weakest since 1988, according to North Dakota-based Halo Commodity Company.

'Critical rains'

The data were viewed as showing a heightened urgency for rains to refresh drought-hit crops.

"It confirms how critical it is for this next 10 days rainfall to materialise," said Mike Zuzolo at Global Commodity Analytics, raising the spectre of 2012, when US crop production was devastated by dryness.

"Otherwise, we are indeed heading toward similar crop conditions in row crops as we are seeing in the spring wheat, and we are starting to move into 2012 territory."

Weather forecasts

However, while the northern Plains have received rainfall in recent days, some observers saw models as indicating a return to dry conditions.

Darrell Holaday at broker Country Futures said that "it should be noted there were some very good rains in North Dakota and South Dakota overnight and this morning,

"But other than some additional rainfall tonight, the moisture disappears for at least 10 days, based on latest model runs."

Benson Quinn Commodities said that "more rain will be needed but forecast turns dry for the next 10 days".

David Tolleris at WxRisk.com offered more hope for farmers, saying that both European and GFS weather models "show pretty good rains over southern half of Minnesota into North Dakota and the northern portions of South Dakota" in the one-to-five day horizon.

However, on the six-to-day day outlook, the "European model has flip flopped and it now agrees with the GFS, and both models show large areas of no significant rain over the Midwest and the upper Plains".

Too late?

Still, even the current rains are arriving too late to save some crops, with social media over the weekend showing pictures of some South Dakota farmers cutting spring wheat for hay, echoing what has already been undertaken in winter wheat.

"The question now becomes what the recent rains have done for the Dakotas, and whether this will change any producer attitudes toward abandoning their wheat, harvesting their wheat or putting it up for hay," Mr Cronin said.

"Anecdotal reports of spring wheat heading out this week as far north as Minot seemed to call into question how much benefit additional rainfall could provide."


agrimoney

Readers choice: TOP-5 articles of the month by UkrAgroConsult