Even if rains have somewhat alleviated the extreme summer drought in much of the Midwest, they’re not out of the woods yet, says Andy Waldock, of Commodity & Derivative Advisors.
The summer is over but drought fears continue to haunt the grain markets. The rain we never received this summer has turned into snow that we hope is coming. The corn and beans have long since been harvested but the US winter wheat crop is the next grain market to be left high and dry while European wheat is left to drown in its own wealth of precipitation.
The USDA Crop Progress Report showed 39% of the US winter wheat crop in good or excellent condition as of November 4. Sounds pretty good, right? The reality is that this is the lowest, “good to excellent” rating for this time of year in the 27 years that this report has been issued. The US Drought Monitor still shows drought across more than 62% of the nation. More importantly, the, “extreme drought” area still covers approximately 6% of the nation. This includes major growing areas like Nebraska and is expanding through the upper Midwest and Great Plains.
Meanwhile, across the pond, planting in France and England is well behind schedule with France’s plantings 24% behind last year’s pace. Further adding to the globally bullish tone is Russia’s recent reduction of this year’s harvest by half a million metric tons, which drops it to a nine-year low. These forces have reduced the global stocks to usage ratio, how much we have on hand relative to what we’ll need, to 25.4%, which is the lowest level seen since the 1970’s according to the USDA.
The tightness in the wheat market can be seen in its performance relative to corn and soybeans. Both corn and soybeans have pulled back considerably from the highs they made this summer. Corn is currently more than 12% off its August high and soybeans have pulled back by more than 14% from their September high. Wheat on the other hand is less than 6.5% off of the July high and has merely drifted lower following its peak.
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