by Joe Sowers
Market Analyst
U.S. Wheat Associates
via U.S. National
Association of Wheat Growers
USDA downgraded HRS crop condition
ratings again this week, confirming that the drought that
decimated the HRW crop in the Southern and Central Plains has
spread north. Meanwhile, competitors for the hard wheat export
market in the southern hemisphere, Australia and Argentina, are
also suffering from drought conditions, leading to lower
plantings and lower expected production. The forecasted pinch in
hard wheat supplies has pushed HRW and HRS prices to their
highest levels since July 1996.
HRS condition ratings by USDA’s
National Agricultural Statistics Service (NASS) have declined
every week for nearly two months, with 42 percent of the crop
now estimated in good to excellent condition compared to 78
percent this week last year. The poor growing conditions have
led NASS to forecast a decline in HRS production exceeding 42
mbu (1.1 MMT) from last year to 425 mbu (11.6 MMT), 9 percent
lower than last year and 18 percent below 2004/05. The forecast
average yield is 33 bushels/acre compared to 37 bushels last
year. More than 90 percent of the U.S. HRS acreage is planted in
North Dakota, South Dakota, Minnesota and Montana where
production is forecast to fall by 9 percent (20 mbu), 18 percent
(12 mbu), 13 percent (9 mbu) and 2 percent (2 mbu) respectively.
This month NASS left its HRW
production forecast unchanged at 660 mbu (18 MMT), down 29
percent from 930 mbu (25 MMT) last year. With more than 70
percent of the crop harvested, including all of the crop in the
two largest HRW states of Kansas and Oklahoma, perhaps the worst
has been realized in the Southern Plains.
Although harvests in the southern
hemisphere are months away and may still be aided by favorable
weather, USDA’s World Agricultural Supply and Demand Estimates
(WASDE) released this week supported reports that severe drought
has reduced plantings in Australia and Argentina. The WASDE
forecast for Australian production was revised down from 24 MMT
to 21.5 MMT. This revision for Australia combined with 1.2 MMT
shaved from the Argentine production forecast last month and the
dramatic decline in U.S. production has caused concern over the
availability of global exportable hard wheat supplies this year.
It is anticipated that HRS and HRW
prices will “ration” supplies. Minneapolis HRS futures closed
Wednesday at $5.38/bushel, up 53 percent from $3.51 a year ago.
Although basis prices have dropped, the14 percent protein HRS
basis in Duluth is $0.47 this week compared to $1.25 in July
2005, FOB cash prices are still 25 percent higher than a year
ago. The HRW futures in Kansas City, at $5.09/bushel on
Wednesday, are 51 percent higher than the $3.37 close in July a
year ago. The HRW basis for 12 percent protein HRW Texas Gulf is
similar to last year at $0.76/bushel compared to $0.70 a year
ago. Therefore, HRW FOB GULF export prices are 43 percent higher
than a year ago, severely limiting export demand. Currently, HRW
export sales are down 40 percent, 953 TMT behind last year’s
pace.
Links:
NASS crop conditions report:
