The situation for the U.S. wheat crop is starting to look less dire.
Domestic production of all varieties will be bigger than analysts expected, a U.S. Department of Agriculture report showed. The agency boosted its outlook for the winter-wheat harvest from a June estimate and said that output for spring varieties, while down from last year, will be bigger than the average analyst estimate in a Bloomberg survey.
Wheat prices have been on a tear over the last month as a drought in northern U.S. growing areas hurt crops. The damage may not be as bad as feared, and benchmark prices slumped after the government’s report on Wednesday. The agency also raised its outlook for domestic reserves in the 2017-18 season, citing lower exports and feed use, and the cut to world inventory was less than expected.
“Of everything, wheat had the most disappointing report here today,” Ted Seifried, chief market strategist at Zaner Group LLC in Chicago, said by telephone.
On the Chicago Board of Trade, soft red winter wheat futures for September delivery dropped 3.1 percent to $5.36 a bushel at 12:30 p.m. local time.
Also on the CBOT, corn futures for September delivery dropped 4 percent to $3.8575 a bushel, on pace for a record loss for the contract. The USDA revised its outlook for domestic production higher to 14.255 billion bushels, topping all analyst forecasts in a Bloomberg survey.
Output for this year’s spring wheat crop, excluding durum, will be 423 million bushels, 21 percent less than last season, the government said. Analysts surveyed by Bloomberg forecast 409 million, on average. Futures for the variety traded in Minneapolis were 1.6 percent lower.
The domestic yield for spring wheat was forecast at 40.3 bushels per acre, compared with 47.2 bushels last year, the USDA said. Drought conditions have continued to worsen in the northern U.S. states and ratings for the variety are running at the worst for this time of year since 1988, signaling the yield estimate may be revised lower in later reports.
In a July 7 report, Societe Generale SA Analyst Rajesh Singla said U.S. spring wheat yields may average 35 bushels, with downside potential, as the window for crop recovery closes.
“Spring wheat still has a bullish case,” Seifried said.
Other highlights from the USDA report:
- The agency left its outlook for U.S. corn yields unchanged at 170.7 bushels per acre. Analysts, on average, had expected a cut to 169.1 bushels.
- The forecast for domestic soybean yields was also left unchanged. The USDA will make its first survey-based production estimates for corn and soybeans in an August report.
- The USDA lowered its estimate for U.S. soybean reserves in both the 2016-17 and 2017-18 marketing years, while boosting the outlook for world inventory. Soybean futures fell, snapping an 11-session rally.