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Wheat in Focus Again With Wednesday’s Key USDA Crop Report

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Lower production estimate seen in the USDA’s latest WASDE data.

© Matthew Lloyd/Bloomberg

Farms in the northern U.S. have been plagued by drought this year, and the impact on grain production may become clearer when the U.S. Department of Agriculture releases its monthly World Agricultural Supply and Demand report on Wednesday. Here are a few of the things that traders will be watching for.

ALL EYES ON WHEAT

North Dakota and neighboring states are home to much of the country’s production of spring-wheat, a variety coveted for its high protein content. Dryness has worsened in the area during the past few months, and national crop ratings are the worst for this time of year since 1988. On average, analysts surveyed by Bloomberg forecast spring-wheat production will fall to 409 million bushels, which would be a 15-year low. While winter-wheat output is seen slightly higher than the government’s estimate in June, the plunge in spring production may push U.S. wheat reserves below the USDA’s prior forecast.

Spring Wheat Supply

Drought in Northern Plains may curb U.S. output to 15-year low.

© Bloomberg

..BUT DON’T FORGET CORN AND SOY

Hot, dry weather in parts of the Midwest have caused grain markets to surge in the past few weeks, as crop ratings deteriorate. Both wheat and corn are trading near their highest in more than a year in Chicago, while soybeans have jumped about 13 percent from a June low. The USDA won’t issue its first survey-based production forecasts for corn and soybeans until the August WASDE report. For now, analysts are expecting the government to slightly lower its outlook for yields of both crops. Still, domestic production and reserves may increase from the government’s June forecast as USDA boosted its outlook for planted acreage last month.

Grain Market Rally

Index tracking corn, soy wheat returns touches highest in 11 months.

© Bloomberg

SHRINKING CROP INVENTORIES

As always, traders will keep close watch on how any changes to production estimates affect what for many is the real bottom line: world reserves. Based on the USDA’s June forecasts, the combined global stockpile of corn, soybeans and wheat at the end of the 2017-18 season will shrink for the first time in five years. On Wednesday, the agency may cut its outlook for wheat inventories, increase its projection for corn and hold its estimate soybeans fairly steady, analysts predict. Farmers in Brazil just harvested a record amount of soybeans and are in the midst of collecting corn, which is also expected to be the largest crop ever. In its own monthly crop report on Tuesday, the country’s national supply company Conab boosted its outlook for 2016-17 corn production, though the forecast trailed the average estimate among analysts in a Bloomberg survey.

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