Afternoon wheat: Friendly crop report data makes the wheat complex the king of the grain floor - at least for today

Futures: 
It was all about the crop report today. Price action this morning leading up to the report was a little weaker, but the trading range over the past six days was only twenty cents, so there was some indecision on what the report was going to say. The data was friendly to wheat, as US ending stocks were reduced more than expected, and the USDA was more aggressive than expected at reducing World wheat crop supplies. All three classes of wheat quickly raced out to double digits higher, and even more impressively, the markets not only held those gains but extended and kept them through the close. KC wheat finished the strongest at twenty cents higher, while Chicago ended the day around seventeen cents higher and Mpls finished the session around twelve cents higher.

So, what was the bullish data to spark today's rally? Foreign 2019/20 wheat supplies were decreased 10.5 MMT primarily on lower production in several major exporting countries. The declines were led by a 3.8 MMT reduction in Russia (but Russia's production estimate of 74.2 MMT is still the second largest on record). Australia, Canada, Ukraine and the EU were also lowered. Global 2019/20 exports were lowered 2.3 MMT on decreased supplies, World consumption was lowered 2.9 MMT primarily on reduced feed and residual use, and with global supplies declining more than projected use, World ending stocks were reduced 7.9 MMT to 286.5 MMT (but that still remains record large). From the US side of the ledger, they increased production in every class of wheat (they will eventually have to increase it more in HRW). But, because HRW wheat production was not increased as much as it should have been, and exports were very optimistically raised slightly, (the increase in feed was expected), ending stocks were reduced 72 mil bu. I mentioned all week this is where the surprise of the report may come from. Was not expecting exports to be raised, but we all knew they were going to have to raise their feed estimates, and I figured the USDA would wait until the August report before being aggressive in increasing its HRW wheat production estimates.

So, for at least a day, the wheat complex was the king of the grain floor, with KC leading the charge as they posted twenty-cent gains. This was strong enough to keep soy and especially corn from breaking down. Keep in mind, the corn numbers were extremely bearish, yet corn futures were able to settle nine-cents higher thanks to the gains in wheat. But, one day's gains do not make a trend, and it will be important for the wheat complex to build off today's gains and finish the week strong.

As we look ahead, I find it very difficult to see wheat futures racing away from corn futures - as it is hard to imagine that just after trade has been successful at slamming wheat into feed, it will just as quickly move in the other direction - thus from here on out wheat may become a follower to corn again. The USDA was about as aggressive as I have ever seen them at lowering World production estimates from one month to the next. Hard to see them being that aggressive in the coming months. Granted, they were justified in raising feed here in the US by 50 mil bu (40 old and 10 new), but if wheat is going to move away from corn they will not be raising feed again anytime soon. Also, the spike in US futures pushes US wheat prices even further away from being competitive with the rest of the World, so exports will not be raised again anytime soon. What will be raised is the HRW wheat crop estimates - and by around 40 mil bu. That means US ending stocks will probably not be seeing any more reductions anytime soon. The USDA could not have dressed up this report for wheat any better than they did. Come August expect only minor changes in wheat as the USDA will be more focused on corn and soy adjustments.

Crop Report data:
World data: As expected, we saw plenty of small reductions from several countries around the World in production, which led to a reduction in World wheat carryout. Australia was lowered 1.5 down to 21 MMT, Canada was lowered 1.2 down to 33.3 MMT, the EU was lowered 2.5 down to 151.30 MMT, Russia was lowered 3.8 down to 74.2 MMT and Ukraine was lowered 1 down to 29.00 MMT. Global 2019/20 wheat exports were lowered 2.3 MMT on decreased supplies. Russia's exports were reduced 2.5 MMT, Australia was reduced 1.0 MMT and Ukraine was lowered 500 TMT. These reductions are partially offset by a 500 TMT increase for the EU and a 1.4 MMT increase for the US. World consumption was lowered 2.9 MMT, primarily on reduced feed and residual use. With global supplies declining more than projected use, world ending stocks were reduced 7.9 MMT down to 286.5 million but still remain a record large.

US data: As expected, we saw a small increase in Winter wheat production, with each class seeing minor gains from last month. HRW wheat was raised 10 up to 804 mil bu, SRW wheat was raised 1 up to 259 mil bu and White wheat was raised 5 up to 227 mil bu. This gave us total winter wheat production of 1.291 bil bu - which was close to my expectation. The first 2019/20 survey-based production forecasts for Spring wheat and Durum were both lower than last year, mainly on a reduced harvested area. Spring wheat production was pegged at 572 mil bu, and Durum was pegged at 58 mil bu - both of which were also close to my estimates. This gave us an All Wheat production estimate of 1.921 bil bu, not too far off from where we were thinking.

I thought the surprise of the report was going to come from the stocks side (much lower than the avg guess) and the USDA did not disappoint. First, beginning stocks were reduced 30 mil bu from the June report as the USDA raised feed in old crop wheat around 40 mil bu amongst other minor changes. So, starting at a stocks number of 1.072 bil bu, and after an increase of 18 mil bu in production, we had total supply of 3.133 bil bu. New crop feed was increased 10 mil bu, and exports were increased 50 mil bu, to give us a total use number of 2.133 bil bu. This gave us our ending stocks number of an even 1.0 bil bu. The class breakdown: HRW was pegged at 426 mil bu, HRS was pegged at 323 mil bu, SRW was pegged at 125 mil bu, White was pegged at 66 mil bu and Durum was pegged at 60 mil bu. Avg farm price was raised .10 to $5.20/bu.

The all-wheat yield was raised 1.3 bpa to 50.0 bpa. The biggest moves by state was Missouri and Idaho with a 4 bpa increase, Nebraska and Colorado with a 3 bpa increase and Texas and South Dakota with a 2 bpa increase. The declines were led by North Dakota losing 5 bpa, North Carolina losing 3 bpa and Illinois and Indiana each losing 2 bpa from the June report. I have no problem with the production table for the Spring wheat states that the USDA gave us.

Headline news:
Export sales this morning was very similar to last week. Sales came in at the low end of expectations at 284 TMT, which took total sales to 276 mil bu vs 225 mil bu last year. It was the second consecutive week in which total cancellations eclipsed 100 TMT, with Unknown the largest at a combined 76 TMT between all classes. The Philippines was the largest buyer taking 124 TMT, with Mexico and Thailand notable buyers as well. The only surprise of the report was that Algeria picked up a small vessel of HRW (34 TMT).

Russia's Ag Ministry pegged total 2019/2020 grain exports at 45.0 MMT, up from the 43.3 MMT of exports the country had this past year. They are forecasting 2019/20 wheat exports at 36.0 MMT, up from the 35.2 MMT the country had this past year, and they are pegging 2019 wheat production at 75.0 MMT.

Analysts with Strategie Grains lowered their 2019/20 EU soft wheat production forecast by 2.2 MMT down to 140.6 MMT. They pegged soft wheat acres at 23.7 mil hectares and yields at 5.9 mt/ha. Those figures compare to last month's estimates at 23.8 mil ha and 6.0 mt/ha. They raised their 2019/20 EU durum wheat production forecast by 100 TMT up to 7.8 MMT. They also said durum wheat acres should be around 2.4 mil hectares and yields at 3.3 mt/ha, which would not be too different from last month's estimate of 2.4 mil h/a and 3.2 mt/ha.

France has started its wheat harvest and early results have come back with very strong yields, but some weakness in protein levels. Soufflet has pegged protein levels at between 10.7 and 10.8 pct, which is below the minimum level needed for export (11 pct). This has led to cheaper animal feed-wheat prices being quoted, which is similar to what we are seeing here in the US.

Spreads:
The wheat/corn spreads saw a quietly mixed session overnight as trade awaited the crop report data. Trade was hoping for some positive data to end its streak of seven consecutive sessions in which the spread has settled lower. Ask and you shall receive. The crop report data was friendly wheat and negative corn and the spread quickly rallied a dime off the news. Although the spread finished the day around eight cents higher, it did settle a nickel off its highs. Today's rally was not strong enough to fill in last week's gap (basis the Sept), and I suspect we will continue to find enough selling to prevent that from happening unless something else changes.

The KC/Chicago spread saw mixed price action overnight, but prior to the report being released trade was mostly two to three cents lower. The report was friendly the spread as the USDA did not increase its HRW wheat crop estimates nearly as much as many had expected. The spread rallied a nickel off the data, then remained firm the rest of the day before finishing the session around three cents higher. Many still believe we will get an 850 mil bu HRW wheat crop. The USDA does not think so yet, and it is their data we have to trade from, so at least for the time being, look for the spread to continue to firm. Look for selling near 50 cents basis the Sept.

Export business this week:
*** Japan bought a total of 98,705 mt of Aussie, Canadian and US origin wheat. Of this total, 28,770 mt is Aussie, 34,910 mt is Canadian red, 19,805 mt is US HRW and 15,220 mt is US white wheat.
*** HRW wheat export bids up around a nickel, but basis is down two to three for 11 pro and between five and ten for 12 to 14 pro.
*** Domestic flour mills in hard wheat country have backed bids off about a dime today.
*** Two South Korean flour mills purchased a combined 80 TMT of US milling wheat. It was a mixture of wheat types thus no prices were given. The classes of wheat purchased included HRW, Northern Spring and soft White wheat.
*** Filipino importers reportedly paid $218/mt CIF for 60 TMT of Black Sea origin wheat for delivery between LH August and FH September.
*** The GASC bought four cargoes of wheat (240 TMT), three from Romania and one from Ukraine. The average price paid was $213.92/mt C&F, which was $3.46 more expensive than the avg price paid in their previous tender. The grain was for Aug 10 thru 20 shipment.
*** In last week's tender, Algeria was said to have bought 480 TMT of milling grade wheat instead of the 360 TMT initially thought. Prices still ranged between $216 and $217.50/mt CIF.
*** Jordan did not make a purchase in their 120 TMT opt origin milling wheat tender.
*** July 16 Jordan's state Silos and Supply company is in for 25 TMT of wheat.
*** July 16 Jordan back in for 120 TMT of opt origin milling wheat.
*** Columbia for wheat. Nigeria for Aug wheat. Indonesia around for wheat.