Market Notes and Observations

December 7, 2012

The Chicago wheat market continued its trend of treading water for the week in pricing, finishing up almost a point at the close.  The PNW continues to have a very good positive basis to Chicago.  Speaking of treading water; we have talked briefly before about what the Midwest drought is doing to the Mississippi River. 

A coalition of agricultural groups has petitioned the President to have the Army Corps of Engineers “fix” the problem.  The particular stretch of the river that is problematic is the 200 miles north from St. Louis, MO, to Cairo, IL.  The Missouri River dumps into the Mississippi at St. Louis.  The Army Corps has suspended any releases of water from a large reservoir on the Missouri near Yankton, South Dakota, due to severe drought conditions.  It is estimated that the delivery of 300 million bushels of grain and oilseeds would be affected in this month and in January if the situation doesn’t improve.  That is $ 2.3 Billion worth of goods.  In addition, it is estimated the movement of 500,000 tons of fertilizer would also be impacted. As I have said before we can share . . . rain that is.

But speaking of the underlying cause of the diminished draft in the river-the drought- it isn’t getting better.  It is now estimated that 25% of the Hard Red Wheat acres will be abandoned due to severe drought.  The average is 19.5%.  The average is high due to Oklahoma and Texas farming practices. In any one year (especially depending on drought and prices) 25-35% of Oklahoma wheat acres are abandoned generally to grazing for cattle. In a bad drought year in Texas that abandonment number can reach 65%.  Generally in Kansas the largest wheat growing state the abandonment number averages 5%, but can go to 16% on a year like this.  When all of the Hard Red states are reeling like this the entire U.S wheat production numbers suffer.  

In the Corn Belt (especially west of the Mississippi) there is overall a 6” rainfall deficit, which is the driest since the bicentennial year of 1976.  This rating is based on 117 years of rainfall records. The 1976-77 season went on to have a very wet spring and summer which resulted in a harvest that was only 5% below the trend line.  Those areas of the country better get going on soil moisture.  They can plant record acres of corn in the spring, but they need soil replenishment now, big time.  The USDA is predicting the smallest corn carryout in ten years which leaves just a three week supply before new crop harvest would occur. From talking to growers in the Valley here, our rainfall is playing havoc a bit with our wheat crop, too.  

Farming, don’t you love it? I do.  Have a good weekend . . . . . . . . . .!

Mike Wilhoit, Key Account Representative

Wilco-Winfield LLC