KANSAS CITY — Do you remember growing up in the 1960s when eating cereal wasn’t about the quality of the grain inside, but more about the sugar, flavor and most important the surprise in the box? Perhaps that is the way we need to look at the 2016 world wheat crop. It is not about who grows it or the variety of wheat that is being grown, just the surprise as to how well the crop performs under times of duress.
The 2016 world crop already may be a cat on its fourth or fifth life after dealing with prolonged dryness in U.S. hard red winter wheat country and a deep freeze earlier in March across the same region. Dryness in Morocco, eastern Spain, northwestern Algeria and now India also will play into the production challenge. Each of these areas has entertained market participants for short periods of time in recent weeks, but no one seems to know what the surprise is in the bottom line to production — at least not yet.
World economies seem to be shaping futures markets these days more than supply and demand, but that may be just the excuse for now. Deep in the box of world wheat production there may be a surprise lurking that comes from a collection of weather-related production issues that eventually may surface to satisfy the appetite of many futures traders. Today’s weather
already has produced stress in each of the production areas mentioned above and yet there is no clear understanding as to what the impact of adverse weather has been.
H.R.W. a concern
Topping the list of most recent concerns is U.S. hard red winter wheat. The region has been dealing with a poor distribution of rainfall since early January. Areas from the Texas Panhandle and southeastern Colorado into some important production areas of northwestern Oklahoma and Kansas have reported well below average precipitation in the first quarter of this year. Some areas have received less than 25% of normal precipitation; many more have reported less than half of normal. Conditions have not been nearly as bad in northeastern Colorado, far northwestern Kansas or Nebraska where significant storms occurred in early February and again March 22-23.
In both cases, precipitation fell significantly from blizzards. The most recent event produced 0.20 to 0.75 inch of moisture with a few totals over 1 inch and several inches of snow. The event in February produced 8 to 18 inches of snow across nearly the same region.
Earlier in March rain fell in the southeast half of Oklahoma and north-central Texas to stimulate some significant early season crop growth.
From a percentage of normal perspective, the lack of moisture across the central Plains is quite frightening. However, much of that dry time occurred with the crop dormant, and it followed an unusually wet November and December at which time crops became well established. Only the dryness in March has had a true impact, and since crops only recently have broken from dormancy the lack of moisture has kept the crop groggy and not in any big hurry for aggressive development, despite some very warm to hot days.
The hard freezes of March 19-20 were very impressive, dropping temperatures down to the range of 5 to 20 degrees Fahrenheit from eastern Colorado and the northern Texas Panhandle across most of Nebraska, including western Kansas. However, crop development was still mostly in the vegetative stage, and despite temperatures that dropped 60 to 70 degrees Fahrenheit in a few days’ time, the crop may not have died one of the many deaths that the market fears during the course of any growing season. Plants were certainly shocked, but it is quite doubtful that the duress generated from the dryness and the wild swings of temperatures have had much impact on production potentials.
But who really knows until harvest season how the crop has been affected? It will be like reaching into that cereal box and pulling out the surprise and determining whether or not it was worth eating all that cereal. In this case, the market will decide at harvest time whether or not the bottom line to production was really worth all of the fear and concern.
Adverse weather present worldwide
The adverse weather in the world does not stop in the U.S. Central Plains. There are other areas of concern. India is on top of that list right now with its normally huge wheat crop dealing with persistent dryness and warmer biased conditions this winter. The crop is going to be smaller even though it is mostly irrigated.
There is approximately 17% to 20% of the India crop that is not irrigated each year, and that is the crop that likely has suffered most from minimal rain events and nearly constant warmer biased weather. It is hard to say how much of that unirrigated crop has been seriously stressed into producing poorly, but a good guess would be about half of it. Some of the hotter areas in India that are irrigated may not see quite the yields that are considered normal because of the heat that challenged irrigation systems often due to the high pace of evaporation.
India’s far northern crop also has been dealt a quality blow in recent weeks. The region in Himachal Pradesh, Uttarakhand and some neighboring areas of Punjab, Haryana and Uttar Pradesh received too much rain during the late filling and maturation stages, possibly reducing some of the region’s crop quality and that, too, may pressure the crop smaller. Similar to the U.S. Plains crop there is a great unknown about how seriously India’s crop has been affected by dryness.
And then there is northwestern Africa and eastern Spain. These areas also have dealt with dryness this year. Morocco had a horrendous stretch of dryness in December, January and early February — somewhat similar to that of the U.S. Plains. Rain did fall in late February and March, but it is unknown how much of the crop was already lost from dryness earlier in the growing season. Much of the driest conditions occurred while crops were semi-dormant, but some of it was not well established to begin with. That leaves much debate about its production potential. Other areas in North Africa have seen abundant rain recently, and the production outlook has improved greatly.
Other areas in the world need to be added to the United States, India and North Africa wheat situation, but these other areas have yet to really contribute much to the fear about total production. These areas include southwestern Canada’s Prairies, where drought from last summer mostly has been unaltered through the winter, and spring looks rather dry. This region of Canada produces quite a bit of spring wheat, and the dryness reaches into the northwestern U.S. Plains. Concern over spring wheat planting and production potentials will rise this spring in these areas because of continuing dryness. And then there is Europe and Ukraine where a cool and wet spring is predicted.
Ukraine and some areas in southern Russia last autumn were dry and production was expected to be low because of poor establishment and reduced plantings. Since then, there has been plenty of precipitation and snow cover leaving crops mostly undamaged by winter’s chill. Surviving crops may be poised for aggressive development when it finally warms up.
The bottom line is that we need to keep eating our way through the cereal box until we get the surprise and see what we have. The odds are high that more volatility is facing the wheat commodity trade before we fully understand the global production picture, but it looks like the world supply may shrink a bit on weather.