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Spring wheat futures prices reach over $10

Spring wheat futures prices reach over $10

Spring wheat

The good news for spring wheat producers in late October was that futures prices had reached over $10 a bushel. However, buyers most likely weren’t looking at that in the same way.

As the tail end of October approached, the Minneapolis December futures had pushed past the $10 mark to the highest levels seen in 9 years, according to Jim Peterson, market director for the North Dakota Wheat Commission.

“On Oct. 25, it reached a high of $10.31, just short of the July 2012 high of $10.35,” he said. “The market seems to want to challenge those previous highs. The next resistance level is $10.50 a bushel and in 2011 we reached a high of $11.20. The next major resistance level after that is in the $12 range. Obviously, it’s going to need some help to continue to push to those levels, both from the demand front as well as the other wheat classes.”

Peterson noted that Minneapolis is pushing close to a $3 premium to the other futures markets, which, historically, was as wide as the spread goes.

“There has been the rare occasion, and all the producers remember it, when prices rallied to the high teens for a short period,” he said. “I think the world situation was much tighter, and logistics cheaper and more fluid when that situation developed. In these markets, you never say never, but it certainly looks like it would take something pretty extreme to develop in the market, either with concerns about 2022 crops or some large, unexpected world demand.”

Looking at the supply side of the balance sheet, there’s no question that supplies are tight and Peterson thinks that’s what’s coming into the market now. There was some producer selling of wheat at harvest time, but that has slowed over the last month.

Also, in Canada, crops there may be a bit smaller than what they originally thought a month ago, and they still have very strong feed demand, even for good quality milling wheat.

“I think we’ve reached a point where pipelines were emptied,” Peterson said. “Here in the U.S., elevators and grain handlers started to prioritize soybeans during soybean harvest, so there just hasn’t been a lot of new movement.”

He also explained that hard red winter wheat has had some renewed demand, both domestically as well as internationally. The Kansas City market was pushing to an inversion, meaning nearby prices are higher than deferreds, which is indicative of pretty strong nearby demand.

“With that said, we’re going to continue to need help from the other markets,” he said.

On the demand front, the current export sales pace for U.S. hard red spring wheat stands at 121 million bushels (MB) in sales, which is down 25 percent from a year ago. The top two U.S. markets are the Philippines and Japan with 38 MB and 16 MB in sales, respectively. Both are off 20 percent from a year ago. Mexico is the number three market with 12 MB in purchases, which is up 50 percent from last year.

“Most of our other traditional markets continue to lag behind. Hopefully we’ll see those sales pick up as customers come to the realization that a major break in the market is probably not likely until we get more reassurance of what’s going to happen in 2022 or if there would be a major sell-off in the corn market or soybeans. But all of the markets continue to show pretty good strength,” Peterson said.

Looking at overall demand, U.S. exports of all wheat classes total 456 MB, which is down 20 percent from 566 MB a year ago.

If we look at the world situation, Peterson noted there are some positive developments there.

The most recent USDA forecast calls for the Middle East region to face some crop shortages. For Iran, Iraq, Pakistan and some of the other big wheat consumers in the region, their projected imports, on a combined basis, are projected up 23 percent from a year ago.

Peterson also noted that Russia is also higher priced and has a smaller crop than they expected. Combine that with their export tariffs that are in place, and discussion that if their market continues to tighten they may go to quota restrictions.

“With Iran potentially needing more than double the amount of imports they needed a year ago and Russia being constrained, that opens the door for the EU, the U.S., and Australia to pick up some of that demand,” he said.

“Obviously, Australia is probably in the driver’s seat right now in terms of world trade. They’re looking at a pretty large crop, just a bit smaller than last year, and potentially record exports out of Australia,” he continued. “The big question is they’ve got some internal logistic issues, as do a number of countries, with a shortage of truck drivers and trucks to get the wheat to port. Australia is just starting harvest now. We’ll know in a month or so what kind of quality they have and what the final yields are.

“Certainly the more aggressive world buying has been positive over the past 2-3 weeks. Obviously, when you get a run-up in the market, it’s going to take a breather once in a while, which we’ve seen now as we hit the end of October, but the rebound in prices has been promising. The question starting to come up from a lot of customers is they know the current marketing year is going to be pretty tight, but they’re all hopeful that we’ll see a rebound in wheat plantings for 2022,” Peterson added.

In the U.S. hard red winter wheat region, early indications are that planted area will be up. The white wheat area in the Pacific Northwest will be up and spring wheat in both the U.S. and Canada, as of right now, looks to be higher. How much is going to depend on input costs and a number of other variables.

Current U.S. hard red winter wheat plantings are about 80 percent complete. The condition of the crop is starting to raise some questions, however, especially in the Pacific Northwest, Montana and South Dakota, where about 40 percent of the newly planted crop is rated in poor-to-very poor condition, is still in need of some moisture. USDA will provide 2-3 more crop ratings before winter and the market will see how the crop goes into winter in terms of condition rating.

This could be a positive for prices. Also, the expected increase in acreage in the soft red winter wheat area may not come to fruition due to some recent rain and there’s even a chance they could be less than a year ago due to delayed plantings.

“With that, hopefully December Minneapolis can maintain above $10 a bushel for a period, and if the stars align, we’ll see if it can test some of those previous highs. We’ll know over the next few weeks,” Peterson concluded.

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