Nogger's Blog

26/10/10 -- Last night's USDA crop condition report for wheat, the first of the season, placed only 47% of the crop in good/excellent condition. That's the crop's worst start to a season in at least fifteen years.

It wouldn't be such a major concern if it wasn't coming on the back of this season's problems in Russia and Ukraine. The hangover from drought earlier in the year there means that winter sowings are going to be significantly reduced in the case of Russia, and have got into the ground late in the case of Ukraine, leaving crops vulnerable to winterkill should we get a harsh winter.

The world is looking pretty heavily reliant on the US to fill the void in wheat availability this year, and luckily they have plenty with which to do it. After two years of stock replenishment the US, whether by luck or by judgement, have refused to get drawn into the "wheat price war" instigated largely by cheap Black Sea sellers, and have stood away from the market.

This leaves them with more than ample wheat stocks with which to supply the world in 2010/11, with ending stocks there still projected to be the second largest in the last ten years - even with the increase in sales this season.

The alarm bells are however already ringing in relation to next season's crop on the back of last night's crop condition ratings, as we really need a decent wheat crop out of the US next year. They are after all the world's largest exporter.

Whilst dryness in the Great Plains was alleviated somewhat by rains at the weekend, prompting ideas that next week's crop condition ratings could in fact show an improvement, it has already caused late emergence. With that comes lack of maturity heading into winter.

Drier and warmer weather than normal is the forecast for the US bread-making wheat states for the next fortnight. Even with the weekend rains factored in "the rainfall plot for Dodge City, Kansas, still shows a 3.7 inch moisture deficit for the period August 1- October 23," say Martell Crop Projections.

This August-October rainfall deficit is being blamed on La Nina, now having reached the "strong" phase. The Climate Prediction Centre believes La Nina will now persist through the Northern Hemisphere winter, they warn.

US winter wheat harvested acres are frequently significantly less than planted acres, with poorly established crops often being turned over to cattle for grazing in the spring rather than being harvested. An additional "risk" to winter wheat this season may be the price of corn. If that holds up at current levels there may be an increased temptation amongst some US farmers to rip up their wheat in the spring and give corn a shot instead.

EU wheat exports will likely have dried up by then too, meaning that the wheat availability picture could look a whole lot tighter if it looks like we are facing a reduced US crop and another disappointing year from Russia and the FSU.

No wonder those 2011/12 discounts are eroding.