Prospective wheat plantings are less than analysts expected and old-crop supplies are declining.
That news plus strong gains in corn and soybean markets carried wheat futures
higher March 30. Dry conditions in several of the world's major wheat-exporting countries suggest the potential for more support in coming weeks.
"We really shouldn’t go too crazy on wheat," said Jerrod Kitt, research director at Linn Group, Chicago. He spoke on a CME Group panel after USDA issued its Prospective Plantings and Grain Stocks reports. Kitt noted that global inventories are near a record high but the stocks-to-use ratio is not at a record, partly because of feed demand.
Wheat acreage this year likely will reach 55.9 million acres, said USDA. Its estimate came in below the average trade estimate of about 57.6 million acres and below the low end of analysts' estimates. Last year, total wheat planted acreage fell to 54.4 million acres as wet weather cut into spring seeding.
"So, versus trade expectations, this is pretty supportive," said Kitt. "Competition for acreage in the Dakotas is absolutely cutthroat," he said. In addition to corn and soybeans, wheat competes in the Dakotas against oats, barley, and canola.
USDA's March 1 wheat stocks estimate was 30 million to 40 million bushels lower than trade estimates.
"We're down 200 million from last year," noted Kitt. "The number indicates feed and residual about 50 million bushels above where they were last year."
He expected spring wheat futures to lead a wheat price bounce after the report. Chicago wheat futures soared as much as 48.25 cents for the May contract and at least 40 cents through May 2014. Kansas City futures for the front four months surged more than 40 cents, and other contracts gained 39 cents. The front four contracts for wheat at Minneapolis climbed 48.25 to 51.5 cents.
Keep an Eye on Weather, Canada
The hard red wheat crop "looks really great," said Kitt. But he added that given the early spring, wheat traders will watch prospects for a freeze that could hurt U.S. wheat crops and for developments in the Canadian crop.
He said deregulation in the Canadian market and revisions in the MGEX contract have changed the hard red spring futures market. MGEX announced in January that it had received Commodity Futures Trading Commission approval to remove the U.S. origin requirement from its contract specifications. The change is effective with the September 2012 contract.
"You have to look at the Canadian wheat crop too. It's essentially part of the U.S. crop," Kitt said. "Now, canola is playing very well in Canada, taking wheat acreage as well."
Global Crop Concerns
Production prospects in other exporting countries may add support to wheat prices.
Wheat winterkill in the Ukraine was higher than normal but Russia experienced a "pretty good winter season" and should harvest a big crop, Kitt said.
Bill Tierney, chief economist at AgResource Company, Chicago, raised concerns about dry conditions in several major wheat-producing areas.
About half of Russia's spring wheat crop grows in a region near northern Kazakhstan, noted Tierney. He said climate consultants are concerned about the Russia-Kazakhstan spring wheat area, Western Europe, and the Canadian prairies.
"We are concerned that those areas are dry" and climatic patterns point to drier conditions ahead, said Tierney.
Wheat Provides Grain Cushion
Dan O'Brien, Kansas State University economist, agreed that there are "lurking issues" in international wheat production prospects.
"If we didn’t start this year with relativity abundant wheat supplies, we'd be a lot more concerned right now," said O'Brien, who noted dry conditions in parts of Canada.
Domestic corn basis levels have responded to tight old-crop corn, and May corn futures surged 40 cents after USDA reported March 1 stocks tighter than analysts expected. Wheat has been replacing corn in rations around the world.
"For feed grains, we'll have extremely tight supplies before we start to harvest corn in the southern United States," said O'Brien. That suggests strong wheat prices at least through corn planting and early development.
Recent rain boosted crop prospects in the central and southern plains.
"Yes, we got moisture, but still the Drought Monitor map shows areas sapped of subsoil moisture last year," said O'Brien. "We still need more moisture to get it to the end."