As the end of October approached, spring wheat was trading off from its recent contract high, according to Jim Peterson, marketing director for the North Dakota Wheat Commission.
“We saw Minneapolis drift back to the $5.60 range on December futures,” Peterson said. “During October we started the month at $5.30 and rallied up to $5.85, but then we sold off some, not so much due to fundamental shifts, but other factors. I think as we hit the election time there’s a little more uncertainty where markets might go depending on the outcome of the election, and some weakness in the equities. Any time you have a rally in the market you get profit taking and a market retreat.”
Looking at some of the other markets, Peterson pointed out that Chicago continues to hold close to a historically high premium over Minneapolis. Chicago is holding in around $6.15, which is about 55 cents higher. Historically, it’s gotten up to more than a 70 cent premium. Chicago has come off its high after peaking at $6.30 midway through October.
Kansas City is holding around $5.50 after peaking at $5.75. But they had a stronger rally through October, up about $1 per bushel.
“That’s primarily what has been driving all the wheat markets,” he said. “In addition to strength in corn prices are concerns about 2021 crop prospects in parts of Russia due to very dry soil conditions, as well as our own U.S. winter wheat region. Of course, producers in those states are hoping for rainfall before those crops hit dormancy, but that window is narrowing as we get into November.”
Looking at the current hard red winter wheat situation, planting progress has been good with the dry conditions. About 85 percent of the crop had been planted, which is slightly ahead of average. About 60 percent of the crop has emerged.
Where the concern is, Peterson pointed out, is that the U.S. Drought Monitor continues to expand and deepen in much of the southwest part of the U.S. and into the winter wheat region, the crux of it being in Colorado, Kansas, Oklahoma and down into Texas.
Overall, about 41 percent of the U.S. winter wheat crop is rated in good-to-excellent condition. That’s down from 56 percent a year ago. Nineteen percent is rated poor-to-very poor, up from 13 percent a year ago.
“One-fourth of the crop is rated poor-to-very poor in a number of key states, so it’s certainly needing some rain,” he said. “I think we’ll see the market sell off if we do see some weather pattern shifts. But the near-term forecast does not look for any plentiful rains, so the winter wheat conditions should still continue to be supportive to the market from a fundamental perspective, but will it be enough to override concerns about the U.S. economy is the question.”
Local prices for hard red spring wheat range from $5 to $5.25. The Minneapolis Grain Index for hard red spring wheat price is at $5.35, up from $5 in early October, but down from the peak of $5.50. A year ago the price was $5.12.
“We’ll see what happens. I think the run-up in prices has probably spurred some producer selling, but the one thing with the Minneapolis market, which is different from Kansas City and Chicago, is we have a pretty good carry in the market, meaning if we look at the December futures on out to May of next year or even July of next year, there’s a significant carry in the market so there’s still incentive to sell in deferred positions,” Peterson said.
“Also, we’re seeing some strong freight premiums in near-term positions, which maybe are keeping a little pressure on our basis levels relative to some of the basis strength we’re seeing in corn and some of these other crops” he continued. “Producers, I think, are still trying to hold out a bit for further price appreciation.”
The latest USDA supply and demand report is projecting hard red spring wheat ending stocks by June of 2021 to be similar to where they were this year and above the five-year average, so that’s still a bit of a “wet blanket” on the spring wheat situation. Exports are projected to be 270 million bushels (MB), which is slightly above last year and above the five-year average. Domestic food use is still running above the five-year average, but down slightly from last year.
Peterson noted that with some of the higher protein in hard red winter wheat this year there’s a slight increase in usage for hard red winter in some domestic mills.
He also noted the current export pace has been a positive for prices and may lead to some changes in export projections as the year progresses. Overall U.S. hard red spring wheat exports are at 162 MB as of mid-October, which is 16 percent ahead of a year ago.
The Philippines continue to dominate the market with 45 MB in purchases from the U.S., which is 33 percent ahead of a year ago. Japan’s imports are at 20 MB, 25 percent ahead of last year’s pace, and China has purchased 14 MB from the U.S., which is “certainly a big increase” from a year ago.
Central American imports are holding steady with last year’s level, but U.S. sales to Europe and parts of Africa are down.
Overall wheat exports total 566 MB compared to 517 MB a year ago, which is about 9 percent higher and ahead of current projections. USDA’s projection is 975 MB for the year compared to 965 MB last year, so only about 1 percent higher.
Hard red spring wheat, soft white wheat, and hard red winter are the three classes that are driving that higher pace, according to USDA statistics. Hard red winter is at 213 MB in sales which is about 10 percent higher than a year ago.
“USDA is projecting about a 9 percent increase, so they’re a little bit closer to the annual projections,” Peterson said. “But again, we’ve seen very good sales to China which has benefitted, surprisingly, the winter wheat class probably more so than some of the other classes.
“Going forward we’ll see what happens through November. We’ve seen a little strengthening in the U.S. dollar, which is long term negative for us on exports,” he continued. “We’re also waiting to see what Canada does with their big crop.”
Canada is expected to be a dominant force going forward. Their protein is maybe down half a point from a year ago, but other than that there have been no major quality issues reported. That might change the dynamics of which markets they’re more competitive in.
As stated before, Peterson said it’s certainly been a positive to see the rally, the appreciation in prices recently.
“Part of that is driven by just the sharper than expected rally in corn prices, and if we see some of those other markets falter, wheat is going to have to rely on export sales to continue to draw support,” he said. “To date this has been a positive story for wheat and hopefully that will continue into the winter months.”