A.G. EDWARDS & SONS, INC.
One North Jefferson, St. Louis, Missouri
314-955-3050
(March 21, 2002) WHEAT: The southern Plains wheat crop is struggling under persistent drought conditions. The National Weather Service reports wintertime precipitation below normal for nearly the entire Great Plains. The Plains winter wheat crop entered the winter in not too good shape. As we move into spring, it remains in poor condition over much of the southern Plains.
Specifically, USDA reports this week that winter wheat rates poor to very poor over 47% of the four southwestern Plains wheat states, Colorado, Kansas, Oklahoma, and Texas. For comparison, these states rated 31% poor-to-very-poor last year on this date, a situation that generated a great deal of concern about production prospects. Marginally poorer conditions last existed in early springtime in 1996, when the region's condition rated 51% poor to very poor.
Plains wheat farmers must decide over the next few weeks whether or not they will abandon wheat acres and replace them with some other crop, such as sorghum, corn, or soybeans. To that end, Texas reported this week in its crop-weather report that some of its farmers are already plowing up wheat fields in the driest areas. Abandonment decisions in Oklahoma and Kansas will follow over the next few weeks.
Kansas is the pivotal winter wheat state. In a typical year, its farmers abandon one-half million acres. Last year it abandoned 1.6 million acres. In 1996, the drought produced losses of 3.0 million acres. If the dry weather pattern persists, then Kansas' abandonment in 2002 will approach 1996 levels. Right now, we suspect abandonment is on the lines of last year, depending on weather developments over the next few weeks.
Kansas Early Spring Wheat Condition Compared
To Final Yield Deviation From Trend
(1988-2001)
Chart courtesy of A.G. Edwards.
The other major component of the production equation is the yield. We ran the chart in Futures AGE last year and it remains appropriate for looking at the developing Kansas situation again this year. Simply, we have plotted the final Kansas wheat yield deviation from trend versus its early springtime wheat condition rating. For the past few years, we have used the wheat rating released by Kansas the first week of March. There is a fairly good linear relationship. The chart outliers are related to events such as the 1995 frost that occurred later in the growing season.
This year, Kansas reported the crop at 26% good-to-excellent the first week of March. Only 1989 and 1996 had lower ratings. Historically, this argues that the Kansas yield will be 5 to 10 bu/a less than trend, which we estimate this year at 44 bu/a. We are using 38 bu/a for Kansas in our assessment and will adjust that based on weather over the upcoming weeks. Nationally, we are forecasting the winter wheat crop at 1.4 billion bushels and the hard red crop at 785 million bushels. Each estimate is very tentative at this moment.
We entered the July wheat/corn spread recommended in the March 7 Spread AGE at 64 cents, premium the wheat. We have a close only stop at 55 cents, premium the wheat. Our objective is 85 cents, premium the wheat.
Bill Nelson www.agedwards.com