KANSAS CITY, MISSOURI, U.S. — Changes in wheat production and yield forecasts in the U.S. Department of Agriculture’s August Crop Production and World Agricultural Supply and Demand Estimates reports to be issued Aug. 12 may be minimal, but adjustments in planting and production forecasts for corn and soybeans were potentially explosive and may tug wheat futures higher or lower going forward, Paul Meyers, chief agricultural economist for Foresight Commodity Services, Inc., told Milling & Baking News, a sister publication of World Grain, in advance of the reports.
A bullish report for the corn crop was likely to pull wheat futures higher, Meyers said, pointing to May, when corn and soybean producers experienced lengthy planting delays due to excessive rain and in some cases flooding, leading to a runup in corn and soybean futures that pulled wheat futures higher in the wake.
“I don’t know if it’ll be penny for penny, but wheat is going to be following along,” Meyers said. “We’re about 60¢ off the contract highs. I don’t think we’re going to revisit the highs. It would take a pretty bullish report on Aug. 12 in order to do that.”
But a bearish report for corn wouldn’t necessarily pull wheat values lower to the same degree, considering the volume of futures that already have been sold off during the recent decline.
“I’m not saying that we don’t go down, but it’s not a symmetric reaction,” Meyers said. “There is a lot better chance that the report will be bullish, I think, than bearish. And if it’s bearish, the decline in price for corn may not be that substantial, just because we’ve given a lot of that rally back already.”
Most of the market will have eyes on the reports’ corn acreage and production figures, seeing them as the key to market price direction for the next several months. How much corn actually was planted in the face of such adverse conditions? How much of the crop fully developed? What will the effect be on carryover stocks?
In the case of a bullish corn report, market volatility may ensue considering the timing compared with a normal year. Late planting meant the 2019 corn crop still has an estimated six to eight weeks left in the growing season. Typically, the acreage figure is fairly well known before the August report, leaving yield as the principal unknown. This year, both area and yield remained up in the air heading into the report, and the range of analysts’ estimates on corn acreage, yields and production was much wider than usual.
“My guess is that the USDA’s corn demand estimates, usage estimates, will be higher than where we’ll end up,” Meyers said. “In the last three or four years, they’ve tended to be too optimistic on where corn usage has been in the United States. and that may still be the case. If they cut the crop 500 million bushels, the question is how much of that 500 million bushels will result in less usage.”
As for the updated wheat figures, the market was not anticipating significant changes in the size of the U.S. crop, nor the use of it. But global forecasts may tell a different story. A potential problem was excessive dryness covering a significant portion of Australian wheat areas. Additionally, 2019 crop supplies in the Black Sea region may exceed recent estimates. The European Union crop initially was feared to have been scorched by excessive heat, but more recent indications were that those temperatures arrived close enough to harvest as to have little effect. Some thought E.U. crop yields could rise.
A year-over-year increase was expected in wheat used for feed in the United States, even if it falls somewhere below the 150 million bushels previously forecast by the USDA. That comports with indications of increased wheat supplies being used on feedlots this summer, sometimes sold to feedlots directly by producers at higher cash prices than offered by elevators.
The export sales pace for U.S. wheat, and the market’s expectations for the outgo, may be another key factor in wheat futures during the next few months, Meyers said. U.S. export sales have not picked up substantially, mirroring the situation in Europe, where year-over-year exports are lower despite a larger crop.
The direction of wheat futures depends on “whether or not we can see a pickup, whether the USDA’s export forecast can hold up,” Meyers said. “I think the USDA’s forecast, 950 million bushels for this marketing year, may be 50 million bus too high, but I don’t think the USDA is going to adjust it this month. It’s still early.”
Meyers said the price of U.S. wheat in addition to what production will be in other exporting countries will be important.
“U.S. wheat prices, in order to be more competitive, will have to come down 20¢, 30¢, 40¢ a bushel from where we are during the next couple months if the U.S. wants to see more sales,” he said.
The value of the dollar will play a role in making U.S. wheat more or less competitive in world markets. The current strong dollar has made it difficult for U.S. wheat offers to be competitive. At the same time, Meyers observed, “The chances are that the Federal Reserve will lower interest rates a couple more times. I think that will weaken the dollar a little, which will help the U.S. competitive position.”