Wheat Outlook August 19, 2013 Volume 22, Number 45

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1 Market Situation Today s Newsletter Market Situation Crop Progress 1 Weather 1 Crop Progress. The winter wheat harvest is 96% complete as of August 18th, just ahead of the normal pace of 94%. The spring wheat crop continues to show generally favorable condition ratings with the percent rated excellent increasing by 2% this week. Spring wheat harvest stands at 18% compared to a fiveyear average of 38%. Commitment of Traders 4 Marketing Strategies 2014 Wheat Marketing Plan 6 Weather. Many hard red winter wheat production areas received a rain of +0.5 over the last week. According to today s Texas Crop Progress and Condition some wheat sowing is taking place in the Northern High Plains (1-N) and the Edwards Plateau (7). Even with recent rainfall, the majority of the state is experiencing soil moisture levels that are short or very short. The El Nino forecast is for three month average sea surface temperatures in the equatorial Pacific forecast to remain in the neutral zone through this winter. The National Weather Service predicts an equal chance of normal precipitation from September through November. 1

2 % of Acreage with Short and Very Short Top Soil Moisture, 8/19/2013 TEXAS WHEAT PRODUCTION 1-N 42% 1-S 6% 2-N 10% 2-S 13% 3 4% 4 17% 7 3% 8-N 1% Other 3% 63% 59% 44% 68% 57% 84% 75% 74% 84% 78% 85% 94% 88% 48% 93% Source: USDA and NASS 2

3 Oceanic Nino Index (ONI) ENSO-neutral conditions continue. Sea surface temperatures (SST) are near average across the western and central Pacific Ocean and below average across the eastern Pacific. ENSO neutral is favored into the Northern Hemisphere fall of C El Nino 0.5 Actual Measurements Predicted Model predicts ENSO-neutral conditions through end of 2013 Neutral La Nina Latest actual weekly SST departure -2.0 El Niño/Southern Oscillation (ENSO) Diagnostic Discussion, 3

4 Commitment of Traders. Hedge funds held net short positions in the grain markets for the 7 th week in a row according to last Friday s Commitment of Traders from the CFTC. As of Tuesday August 13 th, the day after the WASDE report, hedge funds were net short Kansas City wheat by 3,870 contracts, net short Chicago wheat by 75,193 contracts, net short corn by a record 187,642 contracts, but still net long soybeans by 13,153 contracts. The longest stretch of net short holdings by hedge funds is 24 weeks, from October 7, 2008 to March 17, Contracts Tuesday August 6 Tuesday August 13 Net Change Open Interest 3,269,152 3,369, ,554 Net Long Hedge Funds -275, ,602 21,564 Net Long Index Funds 695, ,361-2,216 Price Index Net long contracts 900,000 Wheat, Corn, and Soybeans Speculative Investment /bu , , , , , , , , , , , Source: CFTC, positions as of 8/13/2013 Index Funds Hedge Funds Price 4

5 In the Kansas City market, the nearby futures price has stabilized at around $ Hedge funds, while still net short are reducing their bearish positions. The percent of carry in the market is below 33%, a bullish cash market indicator. /bu Contracts 25,000 20,000 15,000 10,000 5, ,000-10,000-15,000-20,000-25,000 1/8/2013 1/15/2013 1/22/2013 1/29/2013 2/5/2013 2/12/2013 2/19/2013 2/26/2013 3/5/2013 3/12/2013 3/19/2013 3/26/2013 4/2/2013 4/9/2013 4/16/2013 4/23/2013 4/30/2013 5/7/2013 5/14/2013 5/21/2013 5/28/2013 6/4/2013 6/11/2013 6/18/2013 6/25/2013 7/2/2013 7/9/2013 7/16/2013 7/23/2013 7/30/2013 8/6/2013 8/13/2013 1/8/2013 1/15/2013 1/22/2013 1/29/2013 2/5/2013 2/12/2013 2/19/2013 2/26/2013 3/5/2013 3/12/2013 3/19/2013 3/26/2013 4/2/2013 4/9/2013 4/16/2013 4/23/2013 4/30/2013 5/7/2013 5/14/2013 5/21/2013 5/28/2013 6/4/2013 6/11/2013 6/18/2013 6/25/2013 7/2/2013 7/9/2013 7/16/2013 7/23/2013 7/30/2013 8/6/2013 8/13/2013 Hedge Fund Net Long Contracts % Carry Bullish Bearish Carry 133% 100% 67% 33% 0% -33% -67% -100% -133% Net Percentage Futures Monday July 1 Monday August 19 Change Change Sep 13 KC Wheat % Dec 13 KC Wheat % Difference Nearby % Carry Sep to Dec 115% 22% -93% Jul 14 KC Wheat % 5

6 Marketing Strategies 2014 Wheat Marketing Plan. July 2014 Kansas City wheat has found significant support at $7.00 as well. If corn futures have found a near term bottom, that should lend support to wheat. I have priced all the 2014 wheat called for in my marketing plan at this time. The next major feature of my risk management strategies will be the selection of my level of crop insurance coverage. The projected price will be established as the average closing price of the July KC wheat contract from August 15 th through September 14 th. The current average is $

7 With normal yields, the price protection of a revenue crop insurance policy is simply the price times the level of coverage. For a 65% RP policy and a $7.00 projected price, that level of price coverage is $4.55 per bushel. That effective level of coverage increases as yield prospects decrease and falls as yields increase. Harvest Price to Trigger Indemnity Payment 65% vs 75% Revenue Protection $7.50 $7.00 $6.50 $6.00 $5.50 $5.00 $4.50 $4.00 $3.50 $ % 90% 100% 110% 120% Yield Price floor 65% RP Price Floor 75% RP Current Futures Price /bu 1000 July 2014 KC Wheat and Marketing Plan Early Season Price Rally / Early Crop Conditions Emerging from Dormancy/Late Season Conditions Harvest Sold 20% at $7.70 on 6/12/ /1/2013 5/13/2013 5/23/2013 6/5/2013 6/17/2013 6/27/2013 7/10/2013 7/22/2013 8/1/2013 8/13/2013 8/23/2013 9/2/2013 9/10/2013 9/18/2013 9/26/ /4/ /12/ /20/ /28/ /5/ /13/ /21/ /29/ /7/ /15/ /23/ /31/2013 1/8/2014 1/16/2014 1/24/2014 2/1/2014 2/9/2014 2/17/2014 2/25/2014 3/5/2014 3/13/2014 3/21/2014 3/29/2014 4/6/2014 4/14/2014 4/22/2014 4/30/2014 5/8/2014 5/16/2014 5/24/2014 6/1/2014 6/9/2014 6/17/2014 6/25/2014 7/3/2014 7/11/2014 7

8 Mark Welch, Texas A&M AgriLife Extension Economist 600 John Kimbrough Blvd, Suite 335 College Station, Texas Tel. (979) Fax. (979) The opinions and recommendations expressed are solely those of the author and are intended for educational purposes only as part of the Texas A&M AgriLife Extension Service. The author and Texas A&M AgriLife Extension Service assume no liability for the use of this newsletter. Educational programs of the Texas A&M AgriLife Service are open to all people without regard to race, color, sex, disability, religion, age, or national origin. The Texas A&M University System, U.S. Department of Agriculture, and the County Commissioners Courts of Texas Cooperating 8