Monday, 21 November 2016

Drought, ratings pose low risk to U.S. winter wheat: Braun

In Commodity News 21/11/2016

Drought conditions have begun to creep their way into the U.S. Plains and several wheat traders and analysts have taken notice. While the situation is definitely worth keeping an eye on, it is far too early for alarms to go off over yield.
Winter wheat comprises 70 percent of the United States’ total wheat output, and 58 percent of that winter wheat is the hard red variety, which is mostly in the Southern Plains. The United States is projected to be the world’s second-largest wheat supplier in 2016/17, behind Russia.
As of Monday, some 59 percent of the U.S. winter wheat crop was in good or excellent condition, up 1 percent on the week.
Top producer Kansas remained steady on the week at 56 percent, while condition ratings slipped in Colorado, Nebraska, and South Dakota, which make up 12 percent of the winter wheat output.
The national good-to-excellent rating of 59 percent may seem dramatically low compared with the summer’s corn and soybean ratings in the mid-to-upper 70s. However, winter wheat’s long-term average rating for the second week in November is roughly 55 percent.
The crop conditions might be less concerning to wheat traders if dryness were not beginning to build in the core production areas.
In Kansas, which grows 23 percent of U.S. winter wheat, some 27 percent of the state is classified in a moderate drought as of Nov. 15 according to the U.S. Drought Monitor. This figure is up from last week’s 12 percent.
Some 44 percent of No. 2 producer Oklahoma is under moderate drought conditions, with 15 percent in the severe category. Drought also escalated this week in Texas, Colorado and Nebraska – all top eight winter wheat producing states.
Collectively, the primary winter wheat belt is under more drought stress than last year, but significantly less stress than the preceding few years. Forecasts show there is not much rain ahead for the Southern Plains and temperatures look to remain above average through November – reasons to believe the drought may expand.
Despite unimpressive condition scores and the near-term possibility for dryness to worsen, there is virtually no indication that U.S. winter wheat yield is currently at risk.
Today’s good-to-excellent rating is 8 percentage points higher than last year’s 51 percent. Final winter wheat yield for the 2016 harvest shattered expectations, rising 15 percent above the long-term trend.
In fact, comparing November condition scores to final yield performances almost suggests that lower-rated winter wheat crops tend to produce bigger yields come the spring.
The 2014 and 2015 harvests are great examples of a promising outlook going completely south. The crops started out rated 65 and 60 percent good-to-excellent in November, respectively, only to end up with the most disappointing yields in over a decade.
On the other hand, the 2011 and 2012 winter wheat crops were planted amid some of the worst drought conditions ever and initial prospects did not seem bright, but both crops churned out above-average yields.
What separates the good crops from the bad crops appears to be rainfall-related, particularly in the March to April time frame, and not related to the crop conditions early on.
There is good correlation when comparing late April condition scores to final yield outcomes, as all crops rated above 55 percent good-to-excellent produced above-trend yields.
It is helpful to have sufficient snowfall (and rainfall where it does not typically snow) during winter in order to replenish soil moisture for spring emergence, but it does not appear nearly as crucial as abundant spring rains.
So although declining crop ratings or expanding drought conditions may sporadically offer short-term support to Chicago or Kansas City wheat futures, genuine concern for winter wheat yield is likely not warranted for at least a couple more months, barring a widespread, deep-freeze winter kill.

Source: Reuters (Editing by Matthew Lewis)