Jan 9 / Alef Dias

Grains, Oilseeds and Livestock Weekly Report - 2024 01 09

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Wheat: American crop kicks off the year with bearish indicators

•The USDA's monthly report on winter wheat crop conditions in certain states indicated that, overall, conditions are better compared to the previous year, highlighting a notable improvement in hard red winter wheat (HRW) producing regions.

•However, the risk of winterkill for this crop remains relevant and deserves to be monitored closely.

•At this point, the scenario of a larger winter crop remains for the US. Improving conditions increase the chance of higher yields and less abandonment of area.

•As a result, the American crop continues to bring bearish fundamentals to wheat markets, and the improved conditions in Kansas indicate that the Kansas vs. Chicago spread should remain around the average.

Introduction

It's been a few years since the US has had a really good winter wheat crop, but the 24/25 harvest started with hopes that this year should be different. And the data released last week by the USDA continued to point in that direction.

Report shows good conditions, especially for HRW

The USDA released its latest winter wheat crop ratings for the season on November 27, reporting that 50% of the US crop was in good to excellent condition, the highest for this time of the year in four seasons.

During the winter, the USDA's National Agricultural Statistics Service releases monthly reports for some states. The government resumes weekly reports on the progress of the US crop in April.

In its monthly crop report, the USDA showed that winter wheat condition ratings improved in December in Kansas, the largest winter wheat producer in the US, as drought eased in much of the southern plains, although ratings fell in other states, including Montana and Colorado.

The USDA rated 43% of the Kansas winter wheat crop in good to excellent condition on December 31, up from 32% at the end of November. Wheat ratings also improved in December in Oklahoma, Texas and South Dakota.

The improved conditions reflected a major precipitation event that drenched Kansas from December 13 to 15. Temperatures in the 30 degree (F) range meant freezing rain at times, especially early in the storm, which also included snow, the Kansas State University agronomy department said in an update in late December.

Nationally, 30% of the winter wheat crop was in a drought-stricken area as of December 26, the USDA reported last week, down from 32% a week earlier and a significant drop from 69% a year earlier. Farmers in the Plains states grow hard red winter wheat (HRW), the largest class of wheat in the US, which is milled to produce flour for bread.

Ratings fell in Illinois, where farmers grow soft red winter wheat (SRW), used to make cookies and snacks. The USDA rated 55% of the Illinois crop as good to excellent by December 31, down from 72% at the end of November.
Fig. 1: Good and Excellent Conditions Winter Wheat (%)

Source: USDA, hEDGEpoint ( *calculated based on states where conditions were reported)

Fig. 2: Rainfall over the last 60 days (% of normal - wheat production shown internally)

Source: WorldAgWeather

Winterkill worries

As winter wheat remains dormant for the next few months, temperature and insulating snow cover are the main characteristics to watch out for. In the dormant stage, winter wheat does not normally suffer damage at temperatures down to 0°F, but it becomes vulnerable to damage when temperatures reach and remain below -10°F for a significant period of time (as this can kill the submerged growing point, resulting in winterkill).

If there is snow cover (over 1 inch or more), these cold temperatures may not be able to penetrate the insulating qualities of the snow. Winterkill is not a common occurrence in US winter wheat production regions, as the combination of extremely low temperatures and little (less than 1 inch) or no snow cover is a rare event.

However, this year many regions have a snow cover that is thinner than usual, increasing the chances of winterkill, while the weather forecasts point to colder weather.
Fig. 3: Snow depth - US

Source: Refinitiv

Fig. 4: Temperature anomaly - Next 15 days (ºC of normal)

Source: NOAA, hEDGEpoint

In summary

The monthly report on winter wheat crop conditions for selected states showed that, overall, conditions remain better than last year, with a considerable improvement in conditions in the HRW producing regions. However, the risk of winterkill for this crop remains relevant and deserves close monitoring.

At this point, the scenario of a larger winter crop remains for the US. Improved conditions increase the chance of higher yields and less abandonment of area, which should compensate for the lower planted area. On this last point, the USDA will provide relevant data this Friday, when it will release - together with WASDE - the first official estimates of planted area for the 24/25 harvest.

As a result, the American harvest continues to bring bearish fundamentals to the wheat markets, and the improved conditions in Kansas indicate that the Kansas vs. Chicago spread should remain around the average.

Fig. 5: Winter wheat production and hectares harvested (Bi bu; M ac)

Source: USDA, Refinitiv, hEDGEpoint *Refinitiv's cultivated area forecast

Fig. 6: Kansas vs Chicago wheat spread (USDc/Bu)

Source: Refinitiv

Weekly Report — Grains and Oilseeds

Written by Alef Dias
Reviewed by Pedro Schicchi
[email protected]
www.hedgepointglobal.com

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