Market Perspective

Last Thursday the USDA released its September Crop Report. With the hot, dry weather the cornbelt has experienced over the last month and the 2-3% decline each week in the condition of the corn crop, the question was how much would corn yields and production drop in this report. The answer was none, in fact USDA increased yields by one bushel per acre and increased production back up to 13.84 billion bushels. While ending stocks for this year were decreased to 661 million bu, the higher production numbers pushed ending stocks for next year to 1.85 billion bu, a very large number. As a result, corn futures fell sharply and wheat got dragged along, with both ending the week just above contract lows.

Corn harvest is just starting in Illinois and Indiana, and with this report, it will be difficult for the market to rally until more of the corn crop is put away. The next report that traders will be looking for is the USDA Stocks and Acreage Report which will be out on September 30th. In the meantime, wheat will try to separate itself from the feed grains.

In the report, USDA did not make any changes to U.S. wheat production or total export sales. This, despite the fact that wheat exports to date remain well ahead of pace needed to reach USDA's projections. Total wheat sales currently stand at just over 600 million bu, equal to 54% of USDA's final projection, with nearly 8 months to go in the marketing year. There is also some debate about how much wheat has been fed domestically. That question might be answered in the Stocks Report but after this report, that's anybody's guess.

The negative in the report for wheat was the increase in world wheat carryovers by 2.5 million metric tons with a 2 million metric ton increase in Canadian production and a million metric ton increase in European production. There were no decreases for China or Australia as many people expected. World corn carryovers were also increased 3 million metric tons.

Locally, after a slow start, selling from the country has picked up and that has pressured white wheat prices recently. Export sales for white wheat have been steady but generally only to our specific white wheat buyers like Japan, the Philippines, Korea and Taiwan. White wheat is not competitive to our traditional swing buyers like Egypt. As long as the selling pace from the country was slow, prices were able to hold up, but when selling outpaced the demand, that's when prices in Portland started to back down.

Over the next couple of months, the wheat market will try and move out of the shadow of the corn market. Export demand for wheat remains strong, and that will have to continue in order to rally wheat prices, since wheat is no longer priced into feed channels. But unlike corn, U.S. wheat carryovers for next year are not excessive. At 561 million bu that represents the lowest figure in 5 years without any adjustments for higher feed usage and higher export sales which could and should happen later in the year. But for now, corn harvest has just begun and that has center stage.