By Angus Brown | Source: USDA, CME
The United States Department of Agriculture (USDA) last week released the first of their weekly crop progress reports for 2016. The report was bearish for wheat, and history tells us the crop progress report is unlikely to provide much bullish fodder over the coming month, we do have a template for a price rise with corn condition however.
The USDA crop progress reports survey the development and condition of major crops in the USA. The reporting season runs from April to November, and the market watches the reports closely for ideas about where supply is headed.
Last week saw the first crop progress report released for 2016, with the headline numbers coming from the winter wheat condition report. The USDA rates wheat crop conditions as excellent, good, fair, poor and very poor. Last week the numbers came in at 10 (excellent), 49, 34, 6 and 1, which as shown in figure 1 is at the upper end of the range, and saw wheat prices ease.
Over the past 10 years the USDA have only reported wheat crop condition at this time of year higher twice, in 2010 and in 2007. Figure 1 shows that wheat crop condition rarely falls far from it’s opening level, as reported in April. On average the proportion of the wheat crop rated good or excellent falls 4 points from April to July, when harvest usually concludes. The biggest decline came in 2012, when the proportion of wheat rated good or excellent fell 10 points from its peak of 64%.
The small moves in wheat condition make sense, with April in the US being akin to October here, when the winter wheat crop is largely set.
There is some hope for trouble in the US, and price rises. The US corn crop is about to start being planted, and is highly reliant on spring and summer rain. Figure 2 shows just how the US corn crop can be affected by a rainfall deficit. In 2012 the proportion of the corn crop rated good or excellent fell from 77% at the end of May, to 23% at the end of July.
General wheat hedging theory says that the window for sales has largely closed. It’s debateable as to whether the wheat hedging window was ever open this year, and the crop condition report has confirmed the winter wheat is looking good.
There remains some hope for stronger prices however, with 2012 the prime example of a failing corn crop, with figure 3 showing the strong impact on both corn and wheat prices, with both gaining in excess of 30%.
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