Grain bulls should temper their enthusiasm at the
surprisingly low level of US winter wheat sowings.
The extent of the decline in US plantings of the crop ahead
of the 2017 harvest has certainly improved wheat price prospects.
But it is not, on its own, a game changer. More upsets will
be needed to world wheat production potential to drive prices into a high gear.
Sure, the US Department of Agriculture data showing US
winter wheat area down 3.75m acres year on year, to a 108-year low of 36.14m acres,
looks like putting a dent in US supplies.
But there would still be plenty to go round, given the size
of US inventories, which the USDA expects to end 2016-17 at 1.19bn bushels
(32.3m tonnes), the highest in 29 years.
Factor in the typical area loss before harvest of 15% over
the past five years, and the average US wheat yield of 46.6 bushels per acre
over that time, and the US looks set to lose some 150m bushels (4.1m tonnes) in
Winter vs spring
Removing that from inventories would not move the needle
Stocks would still close 2017-18 at the second highest in three decades, and stand
well above the recent low of 590m bushels (16.1m tonnes) seen in 2013-14, when
US farmgate prices set a record season high of $7.95 a bushel.
And there is good reason to think the drop in production
would not be so large.
Most of the cut to sowings has come in hard red winter
wheat, a lower-yield type (with a five-year average of 39.2 bushels per acre).
Besides, farmers have a habit of making up somewhat in
spring wheat plantings drops in winter crop area.
So far this century, US spring wheat sowings have moved the
opposite direction to winter wheat sowings 12 times, coinciding only five times.
With US wheat supplies likely to remain well above average
levels for next season too, it would be premature to base a case for expecting a
wheat rally on the US winter wheat sowings data alone.
Still, it is a step in the right direction for wheat bulls.
It usually takes a few blows to kill a bear market in wheat,
a crop which thanks to its especially broad area of production has a
geographical hedge against setbacks in any particular country.
That the data have done is ensure that future hiccups in
world wheat output will count for that much more in price terms.