Agriculture Special Report : The Kansas Wheat Quality Tour –What Does It Tell Us?

The Kansas Winter Wheat Tour group reported that the Tour average for the KSWQT was 37.0 bushels per acre, for estimated state production of 243.3 million bushels. This compares to the tour estimated production of 281 million bushels in 2017 on a 46.1 bpa yield. The May USDA estimate last year was 290 million bushels, which was too conservative. Final Kansas production in 2017 was 334 million bushels. Crop condition ratings for Kansas are a lot worse than last year. The Brugler500 index for KS was 248 this week, compared to 335 a year ago. The WQT yield forecast is lower than last year, and fits that decline in ratings.

So, how good are the WQT estimates at telling us what USDA will find in Kansas? On average, the Tour estimate is 100.0% of the May USDA number since 1985. If that holds true this year, USDA will show us 243 million bushels on Thursday. A regression analysis would suggest 247 million bushels. There is some variance, though. The Tour estimate has been as low as 93.1% of the May USDA number (1996) and as high as 110.2% (1998) of what USDA reported a week later. Last year broke a string of 5 consecutive years where the Tour estimate was higher than the yield reported by USDA the following week.

That said, the Tour number has only been above the final production in 3 out of the past 10 years.

The Oklahoma results were also released. The consensus called for a drop of 37 million bushels from last year’s estimate to this year, with average yield of 25.6 bushels per acre. That would be similar to 2013, but with a smaller acreage base. As with Kansas, the May NASS number on average is very close to the tour estimate. There

KS Crop in Mil. Bu.

is a fair amount of variance in the Oklahoma numbers vs. USDA May and USDA final, however. In 2016, NASS was 22% below the tour estimate in May, but the final production exceeded the tour figure. See the table below:

The take home from the tour results is that production from just these two states could be 126 million bushels smaller than last year’s final USDA numbers. The market had been building in weather premium against further deterioration in the Kansas number, but took some of it out today based on some welcome rains that caused crop scouts to skip some fields (and according to at least one commercial might have skewed the tour result low).

We do need to remember that the futures rally has been based on a US weather event, with perhaps a little additional premium as an incentive to the spring wheat folks to keep trying to plant. The world wheat market is not US centric. World carryover stocks for June 1 will likely be record large. Production is in pretty good shape overall, with some dryness concerns in Australia, Ukraine and Russia.

The bottom line? Barring further cold or storm events, the USDA final production for these states is likely to see a less severe decline than suggested by the tour, just based on historical performance. Losses do look large enough to reverse the stocks building pattern in HRW, and that would be welcome news for basis.

Alan Brugler

There is a risk of loss in futures and options trading. Such trading is not appropriate for all individuals or entities. That may be true for cash grain production as well! Past performance is not necessarily indicative of future results.

Source:

Brugler Marketing & Management, LLC

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