Spring wheat futures tumble after US harvest beats market forecasts

02.10.2017

Spring wheat futures tumbled, dragging on winter wheat values too, after the US Department of Agriculture said that the domestic crop had been far less badly affected by drought than had been thought.

But futures in corn and soybeans rose, after the USDA, in a separate briefing, said US inventories of both crops had not risen so far as investors had expected, and downgraded the record 2016 soybean harvest.

Spring wheat futures for December, which had stood little changed ahead of the official reports, plunged to $6.20 ј a bushel in the aftermath, a drop of 3.8%.

The USDA, in a report revising estimates of production of summer crops such as oats, barley and wheat, pegged the spring wheat crop, excluding durum, at 416.2m bushels.

While that represented a decline of 22% year on year, reflecting drought in the northern Plains spring wheat belt, the drop was nowhere near the as large as had been expected by investors, who had forecast a 382m-bushel harvest of non-durum spring wheat.

"As a result, wheat prices are taking a hit led by the Minneapolis futures," said Terry Reilly at Futures International.

Winter wheat futures fall too

In fact, the USDA briefing made an unexpected downgrade to its estimate of the winter wheat harvest, which it pegged at 1.27bn bushels, a drop of 24% year on year.

US wheat output 2017, change on previous estimate and (on market forecasts)

Other spring wheat: 416.2m bushels, +14m bushels, (+34m bushels)

All-winter wheat: 1.269bn bushels, -8m bushels, (-17m bushels)

includes hard red winter wheat: 750.3m bushels, -8m bushels, (-8m bushels)

soft red winter wheat: 292.2m bushels, -14m bushels, (-13m bushels)

white winter wheat: 226.9m bushels, +4m bushels, (+3m bushels)

All-wheat: 1.741bn bushels, +2m bushels, (-23m bushels)

Sources: USDA, Reuters, Agrimoney.com

The production estimates for both soft red winter wheat, as traded in Chicago, and hard red winter wheat, the Kansas City contract, fell short of most investors' forecasts.

However, winter wheat futures also fell back, depressed by the drop in spring wheat futures, and by a higher-than-expected figure for US all-wheat inventories as of the start of this month.

December contracts for both Chicago and Kansas City dropped some 2%, before staging some recovery.

'Production is revised down'

Soybean futures, meanwhile, gained 1.4% to $9.72 Ѕ a bushel, after the USDA estimated US stocks of the oilseed at the start of this month – and indeed the end of the 2016-17 marketing year for the oilseed – at 301m bushels.

US crop stocks, Sept 1, change on existing estimate and (on market forecasts)

Corn: 2.295bn bushels, -55m bushels, (-58m bushels)

Soybeans: 301.3m bushels, -44m bushels, (-37m bushels)

Wheat: 2.253bn bushels, n/a, (+48m bushels)

Sources: USDA, Reuters, Agrimoney.com

Although a rise of 53% year on year, the increase was less than investors had expected, and indeed below the USDA's previous figure for stocks at the close of last season.

Officials attributed the weaker-than-expected figure in part to an idea that the US harvest last year had been lower than previously thought.

"Based on an analysis of end-of-marketing year stock estimates, disappearance data for exports and crushings, and farm programme administrative data, the 2016 soybean production is revised down 10.6m bushel," the USDA said.

The downgrade reflected a lower figure for harvest area, and a 0.1-bushels-per-acre cut to the yield estimate, although this still represents a record high.

The production cut "surprised us," Mr Reilly said, adding that "we were looking for an upward revision based on results of the last two stocks reports".

'Basis likely to improve'

Corn futures for December gained 1.2% to $3.56 ѕ a bushel, setting a two-week high, after the USDA estimated domestic stocks of the grain as of the start of this month at 2.295bn bushels, again the figure that will be used for closing inventories for 2016-17 too.

That was below the USDA's previous estimate for end-of-season inventories, and below the market estimate too, although representing a rise of 32% year on year.

Lower-than-expected stocks data are viewed as supportive to prices in indicating both that supplies of the crop are less than had been thought, and that consumption of the grain has been underestimated too.

"The cash basis for corn and soybeans is likely to improve as a result of tighter old-crop stocks," said Mike Zuzolo at Global Commodity Analytics.

"The commercials weren't expecting this any more than the production side was."


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