The cash basis for spring wheat remains under pressure, signaling adequate supplies in North America as well as in the global market, while the negative impact of U.S. dollar strength continues to lead to a disappointing export program.
Last week's monthly USDA report left the U.S. all-wheat ending stocks estimated at 966 million bushels (26.3 million metric tons), unchanged from February but still the highest level carried out since 2009/10. This represents 49.3% of estimated 2015/16 use, which would be the highest level carried out as a percentage of total use since 1987/88.
The same report boosted the estimated U.S. spring wheat carryout by 10 mb to 288 mb (7.8 mmt), the largest volume seen since 1988/89. This volume reflects 54% of estimated spring wheat use in 2015/16, which would be the largest carryout as a percentage of total use since 1991/92.
Given this scenario, U.S. basis is weakening with supply far exceeding demand. The attached chart, thanks to DTN analyst Mary Kennedy, compares the current basis level (green line) to the strongest basis seen in the past five years (red line), the weakest basis seen in the past five years (purple line) and the average basis calculated over the past five years (blue line). Note that these basis levels are calculated by the difference between the MGEX future and DTN's National Spring Wheat Index, while referred to as the National Average Basis.
This National Average Basis ended last week at 45 cents under the May future on Friday, the widest basis seen since Oct. 1, while weakening since reaching 10 cents under on Nov. 30. This was reported to be approximately 47 cents weaker than the five-year average basis seen at this time. The current basis is weaker than the weakest level seen in the past five years, with the green line moving below the purple line. Also indicated on the chart, the average basis has tended to drift sideways (blue line) through the end of May over the past five years.
Another sign of weakening cash bids is seen in Portland cash bids for No. 1 Dark Northern Spring 14% protein on rail. Basis levels peaked last November at $1.10 to $1.50 over the nearby future as compared to today's bid of $1.00 to $1.05/bu. over the May future (USD).
Monday's average prairie basis was calculated at $.98 over the nearby May future, which is the weakest basis calculated since Nov. 2 and down sharply from the $1.46 over reported on Jan. 18. Prairie producers face a combination of weakness in the old-crop market combined with the strength of the Canadian dollar which bottomed on Jan. 20 at $.6809 CAD/USD while reaching a March 11 high of $.7595 CAD/USD.
Cliff Jamieson can be reached at firstname.lastname@example.org
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