Wheat: Is the bull just resting or have we met the bear?

The April USDA crop report presented a bearish picture for the global wheat market, reaffirming the steep slide in prices we’ve seen over the past six months. With the 2012-13 marketing year drawing to a close, analysts were expecting a featureless report.

The USDA “found” some wheat, though, raising the estimate for 2011-12 carryover stocks by three million tonnes and lowering this year’s consumption by a little more than one million tonnes. The resulting increase in inventories puts 2012-13 ending stocks at 182 million tonnes, or 27% of consumption, up from 26.5% last month. Although that is still lower than 28.6% in 2011-12 and 30.4% in 2010-12, it has been inching higher since earlier in the season, when the estimate was below 26%.

Late snowfalls and cold weather this winter have been a mixed blessing for the US winter wheat crop. On the one hand, the moisture is welcome after last year’s extreme drought conditions, in the hope that subsoil moisture levels will be replenished. On the other hand, emerging crops in some regions – particularly in key growing states Kansas, Oklahoma, and Texas – are being harmed by freezing temperatures. Spring wheat planting is being delayed in yet other areas due to flooding.

The estimate for U.S. 2013-14 all wheat acreage – that’s the winter wheat crop planted last fall and the spring wheat crop to be planted this spring – is 56.44 million acres, up 1.2% from 2012-13. With the weather situation as it is, however, it does not necessarily mean that the crop will be much bigger than last year’s. Last year’s average yield was a record 46.3 bushels per acre and the harvested-to-planted ratio was a much-higher-than-average 88%. A tough act to follow if weather conditions do not improve.

As of the most recent USDA crop progress report, only 36% of the winter wheat crop was in good-to-excellent condition, down from 64% last year at this juncture of the season.

Most of the Northern Hemisphere wheat areas – including Canada, Europe, and China – are experiencing extended winter conditions, similar to that in the US. Large crops are expected, but can hardly be considered a certainty until the effects of potential freezing temperatures are known.

The International Grain Council forecasts a sharp increase in global production for 2013-14 of 5%, to 690 million tonnes, but estimates that consumption will increase to the same level, so inventory levels would remain at about the same level as this year. The optimistic output estimate is based on expanded plantings and will, of course, depend on the success of the winter wheat crops, which as illustrated, can go either way at this point.

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