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Kansas Wheat market update #157 [email protected] 02/13/15 pg. 1
Hello Kansas Wheat.
Markets are closed Monday for President’s Day, probably needing a day off. Unease reigns…
Labor unrest in North America threatens severe pain to the economy. Longshoremen and port
“slowdowns” on the West Coast (mainly container shipping operations, not grain boats yet), and now
we see the Canadian Pacific RR has gone on strike too, making the North American food supply chain
suddenly quite nervous.
Global macro events like the Middle East and Northern Africa troubles continue to escalate, and a fragile
truce in Eastern Ukraine isn’t expected to prevail. Currency gyrations and crude oil fluctuations are
unsettling, or worse.
Current North American weather isn’t an issue, although we read a recent article predicting
“megadroughts”, lasting for decades are on their way.
Food labeling wars rage, and we saw just today the USDA has approved a GMO apple for commercial
production. This apple offers the promise of not browning as quickly after slicing, an extended shelf-life
trait. Will an apple a day still keep the doctor away if it’s genetically modified?
Other inputs this week included the USDA issuing a bearish wheat fundamental update, yet an offset
was Russia telling their largest single customer, Egypt, that they too would be subject to the new
Russian export restrictions.
How did wheat respond?
KC March futures were up a penny for the week in a sideways maneuver.
The “bull flag” formation is pointing higher, but clearly wheat is coiling, like a Prairie Rattler, putting you
on notice that something a little different is out there…
Charts and discussions follow, with the goal of giving you useful information to help you with your
business. My disclaimer remains the same: these are my sometimes rapidly changing opinions; the
markets are quite treacherous; and past performance is no guarantee…dm
Kansas Wheat market update #157 [email protected] 02/13/15 pg. 2
This week’s weekly closing futures table shows KC wheat unable to break, or rally, similar to corn. Good
news, bad news…
CLOSE KWH15 KWN15 KWZ15 CH15 CN15 CZ15 WH15 MWH15 MWN15 SH15 SN15
02/13 $5.63 $5.69 $5.93 $3.87 $4.03 $4.18 $5.33 $5.87 $5.87 $9.91 $10.00
02/06 $5.62 $5.67 $5.94 $3.86 $4.02 $4.17 $5.27 $5.77 $5.87 $9.74 $9.86
01/30 $5.40 $5.46 $5.72 $3.70 $3.86 $4.01 $5.03 $5.57 $5.69 $9.61 $9.73
01/23 $5.64 $5.72 $5.98 $3.87 $4.03 $4.17 $5.30 $5.76 $5.91 $9.73 $9.85
01/16 $5.77 $5.83 $6.08 $3.87 $4.01 $4.15 $5.33 $5.85 $5.99 $9.92 $10.03
01/09 $6.01 $6.09 $6.33 $4.00 $4.15 $4.22 $5.64 $6.03 $6.17 $10.52 $10.62
01/02 $6.17 $6.24 $6.50 $3.96 $4.11 $4.20 $5.81 $6.11 $6.27 $10.08 $10.21
12/26 $6.44 $6.54 $6.75 $4.15 $4.30 $4.39 $6.11 $6.32 $6.48 $10.54 $10.66
12/19 $6.66 $6.72 $6.91 $4.11 $4.26 $4.35 $6.32 $6.48 $6.61 $10.39 $10.52
12/12 $6.34 $6.40 $6.64 $4.08 $4.22 $4.32 $6.07 $6.21 $6.34 $10.54 $10.65
12/05 $6.39 $6.43 $6.67 $3.95 $4.10 $4.23 $5.94 $6.23 $6.37 $10.42 $10.54
11/28 $6.40 $6.36 $6.60 $3.89 $4.04 $4.17 $5.77 $6.16 $6.30 $10.23 $10.33
Yet beans are a little higher (the record South American soybean harvest is not in the bin yet…) and
Chgo March wheat and MGEX March wheat higher.
Chicago wheat futures are feeling some need for some risk premium, just in case the Egyptians are
“forced” to buy North American wheat.
MGEX (Minny) spring wheat futures responded positively to the USDA dropping their wheat IMPORT
ideas by 20 million bushels and a 10 million bushel increase in projected spring wheat exports.
KC wheat futures had to work very hard to shake off a 20 million bushel cut to projected USA hard
winter wheat exports. KC was helped by this week’s weekly export sales report Thursday, which showed
Brazil buying a HRW boat.
Corn wasn’t sure how to handle the positive input of total domestic usage being raised 50 million
bushels. Feed was cut 25 million, yet ethanol usage increased 75 million bushels. What about “the blend
wall”? Are we nervous all this ethanol will be produced when crude oil is about $50? As the USDA did
not raise their national average corn price even with a tighter balance sheet, I think they are not quite
sure either.
Kansas Wheat market update #157 [email protected] 02/13/15 pg. 3
Here’s the updated corn balance sheet, along with Lanworth’s 2015/16 production outlook I used a
couple of weeks ago. I reduced next year’s supply not quite 50 million bu, based on the reduced
carryout this year.
We are in the midst of the crop insurance price “discovery” … I read Dec corn is currently averaging
about $4.14/bushel.
The long term corn chart is shown next, and I still think we lurch violently from too much to too little.
CORN USA 2/10/2015 Lanworth production guess
year 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
planted 78.3 93.5 86.0 86.4 88.2 91.9 97.2 95.4 90.6 88.0
harvested 70.6 86.5 78.6 79.5 81.4 84.0 87.4 87.5 83.1 80.7
yield 149.1 150.7 153.9 164.7 152.8 147.2 123.4 158.1 171.1 166.6
production 10,531 13,038 12,092 13,092 12,447 12,360 10,781 13,829 14,216 13,445
supply 12,510 14,362 13,729 14,774 14,182 13,516 11,932 14,686 15,472 15,300
exports 2,125 2,437 1,849 1,980 1,834 1,543 731 1,917 1,750 1,750
total use 11,207 12,737 12,056 13,066 13,055 12,527 11,111 13,454 13,645 13,600
carryout 1,304 1,624 1,673 1,708 1,128 989 821 1,232 1,827 1,700
stox/use 11.6% 12.8% 13.9% 13.1% 8.6% 7.9% 7.4% 9.2% 13.4% 12.5%
USA $ farm price $3.04 $4.20 $4.06 $3.55 $5.18 $6.22 $6.89 $4.46 $3.65 $4.01
Kansas Wheat market update #157 [email protected] 02/13/15 pg. 4
I mentioned the “megadrought” article. USA wheat production would drop of course, but I assume
dryland corn production would be decimated, and irrigated corn would suffer as well.
If you haven’t read the “megadrought” article, and are able to read things which make you question
your very existence without freaking out, then here is a link to the story…
http://advances.sciencemag.org/content/1/1/e1400082
That particular article is fairly detailed; here is one from USA Today that “explains” it in English…
http://www.usatoday.com/story/weather/2015/02/12/western-plains-drought-climate-
change/23298093/
Anyways…if a guy could grow wheat for the next 30 years, and never sell it, and then when the
megadrought hit, he’d have a 30 year supply and…never mind.
This article from Reuters says the Russians are thinking about building “an 8 million tonne silo” in
Egypt… http://af.reuters.com/article/commoditiesNews/idAFL5N0VK4BI20150210 …if my math is
correct, that’s about 294 million bushels of wheat. The elevator would be about 8 miles long…you could
put about 3 Oklahoma wheat crops in it…
I assume they too are getting ready for a megadrought… or possibly their Ag Minister had a dream
about 7 skinny cows emerging from the Nile River and eating 7 fat cows…
Kansas Wheat market update #157 [email protected] 02/13/15 pg. 5
Posted bids didn’t move much out West, up a penny with the futures, although…we see some
movement in the Central Kansas Terminals, and last week some train stations in Colorado were chasing
wheat a little.
Date Dodge Colby Goodland Protection Scott City Sublette
02/13 $5.23 $5.31 $5.27 $5.23 $5.25 $5.23-$5.28
02/06 $5.22 $5.30 $5.26 $5.22 $5.24 $5.22-$5.27
01/30 $5.00 $5.08 $5.05 $5.00 $5.02 $5.00-$5.05
01/23 $5.24 $5.29 $5.29 $5.24 $5.26 $5.24-$5.29
01/16 $5.37 $5.39 $5.42 $5.37 $5.39 $5.37-$5.42
Date Concordia Salina Hutchinson Wichita Ark City
02/13 $5.38 $5.38-$5.48 $5.34-$5.53 $5.39-$5.48 $5.37
02/06 $5.32 $5.37 $5.33-$5.52 $5.38-$5.47 $5.36
01/30 $5.10 $5.15 $5.11-$5.30 $5.16-$5.25 $5.14
01/23 $5.29 $5.39 $5.35-$5.54 $5.40-$5.49 $5.38
01/16 $5.42 $5.52 $5.48-$5.67 $5.53-$5.62 $5.51
BASIS Dodge Colby Goodland Protection Scott City Sublette
02/13 -40 -32 -35 -40 -38 -40, -35
02/06 -40 -32 -35 -40 -38 -40, -35
01/30 -40 -32 -35 -40 -38 -40, -35
01/23 -40 -35 -35 -40 -38 -40, -35
01/16 -40 -38 -35 -40 -38 -40, -35
Date Concordia Salina Hutchinson Wichita Ark City
02/13 -25 -25, -15 -29, -10 -24, -15 -26
02/06 -30 -25, -25 -29, -10 -24, -15 -26
01/30 -30 -25, -25 -29, -10 -24, -15 -26
01/23 -35 -25, -25 -29, -10 -24, -15 -26
01/16 -35 -25, -25 -29, -10 -24, -15 -26
Someone asked me what I thought the CP rail strike means…I said “it depends how long it lasts, but
wheat that can actually move is a little more valuable today that it was Thursday.”
Your bids rarely, if ever, are based on what the domestic miller is bidding. Most country bids are set
based on exporter bids. BUT sometimes, wheat on the farm that can trucked quickly to fill a train, or
possibly be trucked to a mill can command a premium, and if this rail strike spreads, or lasts more than a
couple of days, you might see some logistical premiums develop.
These bids will SOON be rolling to the May futures, so you may not notice a better bid.
Kansas Wheat market update #157 [email protected] 02/13/15 pg. 6
AND as a strike may very well indeed make wheat delivered to a flour mill more valuable, IF rail can’t
move wheat OUT of a terminal, in effect, in-store terminal wheat may be worth a little less than it was…
This spread chart of KC H –KC K (March-May) shows some strength, and thus better terminal bids are
not too surprising… narrow carrying charges, or inverses, are a way the market tries to buy nearby
wheat, by removing incentives to store it.
If a feller farmed in South Dakota and had 72 of those storage bags, full of wheat, just lying around,
waiting, then he would have to be aware that the market is trying to signal him. Of course, based on
experience…that particular big operator may very well say: “I see a little better basis, and I see a tighter
futures spread, so why don’t we wait and see if these lead to a rising futures market?”
And then we go back to the wheat chart on page 1, and call that formation a “bull flag”…, and of course
we hope the thing breaks out to the upside and gets rocking, because this long term KC wheat chart
shows prices are well under $6.70, where I calculate total wheat production costs are covered. Well,
well, very well under $6.70.
Kansas Wheat market update #157 [email protected] 02/13/15 pg. 7
Just as corn and bean insurance “prices” are being set, spring wheat insurance prices are also being set.
Prices paid to spring wheat farmers aren’t much better than winter wheat prices, thus I’d be surprised to
see a major uptick in spring wheat planted acres this spring…
Although corn prices and corn revenue per acre are much worse than the past couple of years, which
would remove the idea that guys switch to corn instead of wheat.
And as snow cover is virtually non-existent in the Dakotas, no one is expecting a heavy flood season this
spring, and thus whatever gets planted, should get planted relatively quickly.
This is from Intellicast.com
I will sit another week on my remaining 30% of old crop, and the 90% unsold of my new crop. The
coming megadrought has me a little concerned…
PLANTED SPRING WHEAT ACRES (1000 ac) 9/30/2014
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 10 year average
MN 1,800 1,700 1,700 1,850 1,600 1,600 1,550 1,350 1,200 1,220 1,557
MT 2,600 2,950 2,450 2,550 2,400 2,850 2,450 2,950 2,950 3,050 2,720
ND 6,800 7,300 6,650 6,800 6,450 6,400 5,650 5,750 5,100 6,250 6,315
SD 1,750 1,850 1,400 1,600 1,500 1,450 1,250 1,080 1,190 1,300 1,437
total 12,950 13,800 12,200 12,800 11,950 12,300 10,900 11,130 10,440 11,820 12,029
