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Commodities Report: Most Crops are OK, Exception Is Spring Wheat



The crop season is progressing across the U.S. under favorable conditions … for the most part.  Rainfall has generally been adequate for corn and soybeans and, at this point, it’s hard to think that supplies won’t remain historically large for both for the 2017-18 season. Crop ratings, soil moisture data and weather forecasts have all been non-threatening. The major exception to this has been for spring wheat, which is primarily grown in the Northern Plains. This area of the country has been dry, to say the least, and the spring wheat crop has suffered. As of the last week of June, just 40 percent of the spring wheat crop was rated in either good or excellent condition. To put this in perspective, these are the worst ratings for spring wheat for late June since "A Fish Called Wanda" hit the big screen in 1988. It appears that roughly 100 million bushels of spring wheat demand will need to be rationed. And it is likely to take at least $8 Minneapolis wheat futures to do so.  Buyers should have longer term spring wheat coverage in place. Winter wheat coverage should be in place as well, especially for higher protein product.  Not to be lost in this, the U.S. durum wheat crop has suffered as well, which could be supportive of prices there.  Speaking of suffering, protein buyers did plenty of that this spring because of elevated beef, pork and chicken prices.  As of this writing, beef prices were beginning to roll over pretty hard and there is likely more downside during July. Retailers have backed off on beef feature activity which could weigh on the markets. But there is potential for exports to build longer-term due in part to the new agreement with China and the challenges around the Brazilian beef industry. Chicken producers have had their fair share of challenges with output due to breast quality issues and the age of the breeding flock. This could temper chicken production for the next several months. Conversely, pork output is slated to grow rather sharply deep into 2018 as production capacity expands. In dairy, the story has been rising international prices encouraging U.S. exports which could underpin domestic dairy prices in the coming months. 

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