US winter wheat crop down 9.4pc

The trends were as expected, with higher soybean acres, and lower corn and wheat acres.  

The surprises were the extent of the lift in soybean acreage, and the fall in land to be planted to wheat and corn.

Spring wheat acreage came in 297,000 acres below that of last year, and durum acreage is down 408,000 acres, to leave total wheat acres down 8.16 percent on last year.  

The US winter wheat crop is down 9.4 per cent.  

Quarterly grain stock numbers were also released, with stocks in general coming in above expectations.  

In particular, the soybean stocks were well above industry expectations.  

Corn stocks were also higher than expected, but the number does not appear to be consistent with the level of use domestically for feed and ethanol, and the level of exports.   

Wheat stocks were a little above expectation.

The futures markets reacted by pulling value off soybeans, which flowed over to canola and rapeseed futures.  

Corn and wheat futures both rallied after release of the reports.

This week we will also have the first of the USDA national crop condition ratings.  

The condition of the US winter wheat crop will be down year on year based on the current state based reports.  

This should be factored into the market already, along with the recent rains which may have stabilised crop conditions.   

In the next few weeks we should see the weekly condition report having an impact on prices based largely on rainfall events and whether they stabilise the crop, or allow conditions to improve.  

Any short term decline in conditions should be supportive of futures prices.

Another factor at play is the large net sold (short) position being held by the funds, particularly for wheat.  

If they find themselves on the wrong side of a rising market and decide to exit quickly, we could see a sharp speculative rally in futures prices.

There are certainly some analysts who think that we are due for a rally during the early summer period on the US, partly driven by the lower acres and lower expected production, but also by speculators moving to buy back their sold positions.

Elsewhere, production forecasts for the EU have been lowered a little.  

The EU crop estimate has been reduced by 800,000t, but it still leaves the EU crop well ahead of last year’s crop.

The Black Sea region has also suffered a frost event, with temperatures dipping well below freezing across about 10 per cent of the 

region’s wheat growing areas.  

This added to support of the futures market on Friday night as well.  

It is possible that we will get the correct combination of factors to deliver a price rally ahead of the US harvest period.  We need a series of ordinary US crop condition reports, combining with weather issues from the Black Sea (or possibly the EU).   

If that then triggers a buyback by the funds, a sharp price rally could result.

Be prepared by having price levels in mind for either selling wheat swaps, or making physical sales.  

The opportunity to make a move may be tight.   

We would then only expect a second opportunity later in the year if there is an actual problem with the wheat crop in North America, the EU or the Black Sea, that brings global production in well below current expectation.