Fundamentally Speaking

With U.S. and world wheat prices among the highest in years, reflective of low inventories, solid demand and restrictive export policies, good crops are needed both here and abroad to rebuild stocks which perhaps would lead to some relaxation in values.

Unfortunately here in the U.S., the initial outlook for the 2022 U.S. winter wheat crop not starting out in the right foot as according to the USDA's weekly drought report, 43% of winter wheat crops are in areas of moderate to intense drought as of last week up 2% from the prior week.

Using our usual ratings system where we weight the crop based on the percent in each category and assign that category a factor of 2 for very poor, 4 for poor, 6 for fair, 8 for good, and 10 for excellent and then sum the results, this chart shows the first USDA fall crop rating for the U.S. winter wheat crop.

Also plotted on the left-hand axis are conditions far later in the season, week 25, which is around the third or fourth week of June when the crop has already headed with harvest just starting.

On the right-hand axis is the percent that the USDA's May and final crop year yield estimates deviated from the 30-year trend of final yields.

The initial crop rating for the 2022 U.S. winter wheat crop at 650, other than the year ago first rating of 644, is tied with the 2013/14 season as the lowest ever since the USDA started national crop ratings in 1986.

Not the way to get the growing season started but looking at past history, there is plenty of time for crop conditions to improve resulting in trend or higher yields.

Note that the correlation between the first fall crop ratings and the May yield estimate is negative 18.8% with no correlation at all between the first crop rating and the percent final yields deviate from trend.

On the other hand, there is strong correlation between the week 25 crop ratings and the percent final yields deviate from trend of 71%.

There is a lot of time between now and mid to late-June and should point out that last year's lowest initial crop rating did see some modest improvement over the next few months where the 2021 U.S. winter wheat yield despite the tough start came in right at the 30-year trend.

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