HRW Conditions Decline Again, Crop Estimates Dropping

March 25, 2014 01:08 AM

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn futures are trading 1 to 3 cents lower, soybeans are fractionally higher in the May and July contracts while the August contract forward is 1 to 4 cents lower and wheat futures are mostly 4 to 7 cents lower. Cattle futures are narrowly mixed and hog futures are sharply lower through the August contract.


* HRW wheat conditions continue to deteriorate. The condition of the HRW crop in the Southern Plains declined further in the latest week, with state reports noting the need for widespread precip to improve soil moisture. In Kansas, the HRW crop is now rated 21% "poor" to "very poor" and 33% "good" to "excellent," up one percentage point in the bottom two categories and down one point in the top two. The Oklahoma crop is now rated 42% "poor" to "very poor" and 17% "good" to "excellent," up five points and down one point, respectively. In Texas, the crop is now rated 55% "poor" to "very poor" and 11% "good" to "excellent," up three points in the bottom two categories and down two points in the top two. Because of declining crop conditions, many private crop forecasters are cutting their HRW production estimates, which generally range from about 850 million bu. to 950 million bushels.

The long and short of it: With the crop breaking dormancy, traders are paying closer attention to crop condition ratings and Plains weather. If timely, widespread spring rains aren't seen through the Southern and Central Plains, traders' urgency to build a premium into wheat prices will increase.

* Odds of El Nino building. Conditions remain ENSO-neutral, but odds of El Nino developing are increasing, with most models showing sea surface temperatures reaching El Nino thresholds during the southern hemisphere winter (our summer), according to the Australian Bureau of Meteorology. In its latest update, the bureau says, "Observations indicate the tropical Pacific Ocean is currently warming. Following two strong westerly wind bursts since the start of the year, waters below the surface of the tropical Pacific have warmed significantly over the past two months. This has led to some warming at the surface, with further warming expected in the coming weeks. The Southern Oscillation Index (SOI) has dropped to –13 -- the lowest 30-day value since March 2010 -- but would need to remain firmly negative for several weeks to indicate the atmosphere and ocean are reinforcing each other."

The long and short of it: An El Nino event by summer would be supportive for U.S. crops as El Nino events typically produce favorable growing conditions through the central United States. However, El Nino is often associated with drought-like conditions in Australia and Southeast Asia.

* Ukraine conditions remain normal -- for now. Grain shipments from Ukraine have been largely unimpacted by the geo-political unrest in the country and region. In fact, grain exporters may be picking up the pace of shipments, fearing a slowdown if military tensions escalate. Meanwhile, Ukraine's hydrometeorological center says winter grain crops are "safe" for now despite reports of dryness in the country. Of course, spring weather will largely determine the fate of winter grain production.

The long and short of it: Grain traders are ready to build more premium into the market if the Ukraine situation worsens. Focus in the wheat market is tilting more toward domestic production potential.


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