Wheat: Second Guessing The USDA

US spring wheat ratings good/excellent fell one point from last week to 83%, but are still amongst the best since 1990, according to the USDA last night. The crop is slightly behind normal development at 52% headed, compared to 57% normally. Winter wheat harvesting is past hallway done at 54%, which is in line with normal. Harvesting in the top producing state of Kansas is now 84% complete. Good/excellent winter wheat fell one point to 63%.

Overall the US wheat crop is clearly looking in great shape. Last Friday, Informa pegged the all wheat yield at a record 45.9 bu/acre, fully two bushels ahead of the USDA. They also had 2010 US wheat production at 2.217 billion bushels, which is 150 million higher than the USDA, and now slightly ahead of last year despite the sharp acreage drop.

That sets the stage for the USDA to raise their US production estimates on Friday. They should also increase their ending stocks based on last week's numbers showing wheat stocks as of June 1 at 973 million bushels, which was 33 million bushel above the average trade estimate.

So, from a US wheat perspective, Friday's USDA report should be bearish. Although balancing the books is a pretty popular pastime in Washington, so don't go getting too surprised if they don't raise their domestic usage estimates also to compensate for last week's surprisingly low corn supplies. That might absorb some, if not most, of this extra US production.

The sixty million dollar question now seems to be what will they say for production elsewhere? In particular Russia, Kazakhstan, Europe, Canada and China. Certainly all but the last of those could see production estimates revised lower. Last month's numbers were 57.5 MMT, 17 MMT, 143 MMT, 24.5 MMT and 112 MMT respectively, you could easily make a case out for cutting at least 10 MMT off that little lot, but the USDA are famously slow at reacting to rapidly changing crop production prospects. It may well be that the Russian crop is only 50 MMT this year, but if it is the chances of the USDA reporting it at that on Friday are remote.

So even before the numbers are out, I'm already doubting their credibility, yet the market will react to the USDA's perception of things just like it always does. We might as well place bets on a couple of raindrops sliding down the window pane. Given the magnitude of the recent rises in European prices over the past week, booking a few profits ahead of Friday might be a good idea.