The wheat market remained in a trading range for the past several weeks, but through much of February it seemed to be wanting to test the bottom of that range.
Hopefully March will issue a better trend in prices, according to Jim Peterson, marketing director for the North Dakota Wheat Commission.
“There were some signs that maybe we’ll kind of turn it around, but spring wheat is still facing a lot of headwinds from the other wheat markets, including Kansas City and Chicago,” Peterson said. “For much of February they were trading near their lowest prices in a year. Hard red spring is not doing much better, but it was at its lowest level since July of 2018.”
Peterson pointed out that since the first part of February spring wheat has held up a bit better. Spring wheat was down 20 cents a bushel from the first part of February whereas hard red winter lost 70 cents a bushel in cash prices.
“So even though there were some positives for spring wheat, just the headwinds from a lot of the other markets made it difficult to move up,” he said. “Still the bottom line is prices are still well below producer objectives. In both cases of the hard red wheats they’re about 75 cents a bushel below a year ago. Certainly, we’re hoping that March is a better trend.”
Current prices for 14 protein spring wheat across the main production region range anywhere from $4.80 a bushel to $5.35 with an average of $5.10.
One of the things impacting U.S. wheat is that globally European Union and Russian exports are still very much available and competitive. Plus, in the case of spring wheat, Canada has been causing some challenges for the U.S. in Asia as well as some export challenges for hard red winter in Central and South America.
On the demand side, current overall U.S. wheat exports are at 808 million bushels either sold or shipped. That’s just slightly ahead of a year ago totals at this time of 797 million bushels sold or shipped, an increase of only 1 percent. The current USDA objective is 11 percent higher.
“That means March-April-May need to be some pretty good catch-up months,” Peterson said.
By class, soft red winter is doing the best percentage-wise, up 32 percent for the year. But that only accounts for 10-15 percent of overall U.S. wheat exports. White wheat is holding even with a year ago.
Hard red spring wheat is running about 11 percent ahead of a year ago with 228 million bushels in exports which is ahead of the 206 million a year ago.
“While positive, USDA’s goal is for a 32 percent increase, so the classes that were expected to do better this year like soft red winter, white wheat and hard red spring, are doing good, but not as good as what USDA was projecting,” he said.
Hard red winter wheat is running about 14 percent behind in sales, but that’s actually right on target with USDA’s projection of a 14 percent cut.
For hard red spring the big challenge for the U.S. is Japan where sales are running about 20 percent behind.
“I think part of that might be the fact that we don’t have a bilateral agreement with Japan yet whereas Canada, Australia are part of the new TPP (Trans Pacific Partnership) agreement,” Peterson said. “Hopefully we can get a bilateral agreement on the books and we’ll see if that helps us to turn things around with Japan.
“Also, China and the European Union as well as Vietnam are some markets where we’re probably not doing as well as we had hoped to this year,” he continued. “We’re seeing some very positive trends in many other markets, but to pick up the pace this spring those are some key areas where we need to trip some sales.”
Looking to the north, Canadian wheat sales are 20 percent higher on the year which is actually ahead of USDA’s projection of a 10 percent increase.
“If Canada oversold on the front end based on their crop, hopefully that means a better situation for us going forward,” he said.
Looking at markets where Canada has had an impact on the U.S., it’s in China. Canadian sales to China are 2.5 times larger than a year ago.
“That’s obviously due to the tariff restrictions on U.S. wheat. Maybe that will come to some resolution in the next month or so,” he said.
Besides China, other markets where Canada has had an impact on U.S. sales include Indonesia, Iraq, Spain, South Korea and Peru. All are some key markets where either hard red spring or hard red winter have made some inroads in recent years, according to Peterson.
Going forward the market will continue to be impacted by the trade environment, the outcome of the U.S./China trade negotiations, the U.S/Japan bilateral discussions, and then also the next big thing is 2018 acreage ideas as well as the condition of the hard red winter wheat crop as it comes out of dormancy.
“State crop ratings will be watched closely, primarily to see if the frequent and deep level of Arctic outbreaks have impacted the crops,” Peterson said. “So far the expectation is that most areas have had sufficient snow cover, but with the lower planted acres of hard red winter this year obviously it puts more onus on the level of harvested acres as well as yield to minimize production downturns for that class.”
As far as hard red spring wheat acres, the general impression is for a 5-10 percent increase. The USDA Ag Outlook Conference in February didn’t provide a breakout of durum versus spring wheat but the combined acres of both were only for about a 200,000 acre increase over a year ago.
“Most analysts expect a 500,000-600,000-acre cut in durum, so that would imply about a 700,000-800,000 acre increase in spring wheat which would be about 6 percent,” he said. “That’s probably a good level for now just with the current price trend.
“Back in November-December expectations were for a 10 percent or plus increase in spring wheat acres, but soybeans have fared a bit better than people thought through the winter months and spring wheat has slipped a bit so I think that, combined with what looks to be a late start to the planting season, may temper the level of gains in spring wheat,” he said. “Typically, if we get a late start to planting that tends to lower spring wheat acres more so than soybeans or some other crops.”
In Canada, the U.S.’s primary competitor, their early estimates are for a 10 percent increase in spring wheat plantings, again with lower durum acres and a significant cut in pulses and specialty crops, according to Peterson.
Outside of that, the global economic and macro issues, the stock market tends to be a little bit volatile. We’ve seen oil prices increasing a little bit, so all those impact demand and currency relationships which obviously affects our markets and at least for the month of February funds have been more willing to want to sell the futures markets, especially in wheat. We’ll see if that turns around here in March, if we get some short covering and maybe a little bit more concern about planting delays and some of those things. And, of course, easing of some of the trade friction between the U.S. and China.