Market Perspective

Wheat markets finally reacted positively after a USDA Crop Report. Monday's report showed a 50 million bu decrease in carryovers from the January report due to a long anticipated increase in wheat exports of 50 million bu as well as a 10 million bu increase in feed usage. That more than offset the 10 million bu increase in wheat imports coming from Canada. Wheat markets had rallied over the last week going into this report as wheat sales have remained strong and concerns continue about the condition of the winter wheat crop in the Southern Plains. Last Tuesday the markets rallied over 20 cents on news that winter wheat crop conditions in Kansas, Oklahoma and Texas had deteriorated from over 60% good to excellent last month to under 40% for this month. The speculative funds had a short position of over 500 million bu. The news about the crop conditions forced some shortcovering but going into Monday's USDA Crop Report, the funds are still over 400 million bu short in Chicago.

It is interesting to see the recent strength in the nearby wheat contracts in Chicago, K.C. and Minneapolis. All three futures markets have gone from sizeable carrys from the March to the May contracts to no carry in Chicago and over 15 cent inverses in K.C. and Minn. Nearby demand is strong especially for the hard wheats. Basis for all classes of wheat remain historically high as the tight freight market continues. Winter weather has now been added to the mix of factors contributing to the rail freight situation. What freight problems we have in the U.S. pale in comparison to what the Canadian farmers are experiencing. I have received several calls from Canadian farmers wanting to sell their wheat down here because they do not have any markets for their wheat up north. The west coast ports of Canada are running up to two months behind on vessel loading. That has opened the door for more potential U.S. old crop wheat sales.

Corn actually rallied more than wheat heading into Monday's USDA Crop Report. Demand, both domestically and on the export side, remains strong for corn, and just as in wheat, the freight situation has contributed to a strong basis for feed grains out here. The USDA Crop Report showed a 150 million bu increase in corn exports versus last month which resulted in a 150 million decrease in carryovers with U.S. corn carryovers now projected to be less than 1.5 billion bu. Still a fair amount of corn heading into this year's fall harvest but, significantly lower than the 2 billion plus that had been forecast earlier. After the report, corn initially moved higher along with wheat but profit taking quickly set in and corn futures closed slightly lower, as did soybeans, despite the strong close in wheat. For corn it was a classic case of "buy the rumor, sell the fact." The problem with corn is there is still a lot of corn to be marketed and the recent rally was a good selling opportunity for many farmers in the cornbelt.

While it may look like winter now, in less than a month the markets will start to focus on spring weather and the potential of next year's crop starting with the winter wheat crop in the Southern Plains. There are real concerns about that crop from winterkill to drought. Weather markets were historically volatile and good precipitation is needed both here in the PNW and in the Southern Plains in order to produce an average crop, much less a bumper crop. This recent rally in the wheat markets may be the start of things to come. It all depends on the weather, as usual.