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Spring wheat prices stuck in trading range

Spring wheat

USDA came out with its supply and demand report on Jan. 12, but that report didn’t seem to have much impact on the spring wheat market as prices stayed in the same trading range they’ve been in for the past few weeks.

“With spring wheat, we’re still stuck in a trading range. The futures seem to be in the upper $8 range, maybe $8.85-$8.90 up to $9.40, and then we trade up and down within that range,” said Jim Peterson, marketing director with the North Dakota Wheat Commission. “We’ll see at some point if it’s going to make a more definitive pattern one way or the other because we’re at that point in the year.”

Positive factors that continue to support the market, according to Peterson, are some crossover issues such as dry conditions in South America for their soybean crop, but even then those forecasts shift back and forth.

Still supportive to the market is that overall world wheat stocks are still at some of the tightest levels in the last 10 years.

“It’s just a matter of how liquid some of those stocks are and, unfortunately, that’s one of the negative factors or headwinds to the market,” he said. “Between Canada, Australia, and even the Black Sea (region), there seems to be pretty good momentum to try to move their stocks, so that’s keeping near-term pressure on the market.

“The other negative limiting rallies is that the U.S. is already the most expensive wheat in the world, so if we need to capture more sales, it’s pretty hard to strike out higher unless the world market follows suit,” he added.

Some new news for the market came when USDA released its Jan. 12 reports, which included year-end production reports for multiple crops, including updated yield and harvested acreage numbers. One thing USDA did was lower corn and soybean production a little, which was supportive to prices in those markets. For spring wheat and all other wheat classes, there were no changes, so the market is going with the production estimates USDA had last fall.

On the supply and demand side, USDA took out some wheat feed use from the 2021-22 crop, which ended June 1, 2022, but then they rolled that into this year’s crop. That implies there was less feeding in the first half of calendar year 2022, but greater than expected feeding prior to corn harvest, according to Peterson.

“It was kind of a wash, but it did add to supplies on the front end,” he said.

On the demand side, USDA raised feed use by 30 million bushels (MB), up from 50 MB to 80 MB for the 2022-23 marketing year. A year ago we were at 59 MB. USDA did not adjust export projections, which stayed at 775 MB.

By class, hard red spring wheat was adjusted slightly as USDA lowered projected imports by 5 MB, but they didn’t change exports or domestic use.

“A couple factors for spring wheat that I questioned is they have us down for 10 million bushels of feed use for this year, and just with the quality of our crop and where we’re at price-wise, I find that a bit questionable,” he said.

“Seed use is projected at 18 million bushels, up from 12 million last year, so that’s implying that USDA feels we’re going to plant more spring wheat this year, so we’ll see what happens,” he added.

Along those lines, USDA came out with its first winter wheat acre estimate for what was planted last fall. Somewhat surprisingly, USDA increased potential acres by 11 percent nationally, up to 37 million acres. The majority of the increase came in soft red winter wheat, which is in the Corn Belt, including Illinois, Missouri, Michigan and Ohio. In the main hard red winter wheat state, Kansas, there was only a 3 percent increase in acres, and just a 2 percent increase in Montana. The big increase came in Texas, where acres were up 26 percent. In North Dakota and South Dakota, where analysts were anticipating a slight increase, those acres didn't change, with North Dakota holding at 105,000 acres. That was a bit of a surprise.

“Going forward, it’s still going to be what moisture they get in the hard red winter wheat area,” he said. “The thing to keep in mind is that just because Texas or Oklahoma planted that many more winter wheat acres, they tend to graze a fair amount of their winter wheat. And with the shortage of forage and tight hay supplies, dry pastures, I would anticipate a good chunk of that to be grazed out, unless wheat prices rally substantially.”

The other report USDA came out with was the Dec. 1 stocks inventory report. There was nothing too surprising, Peterson noted, other than generally less stocks were available on Dec. 1 than the market had expected. USDA pegged those stocks at 1.3 billion bushels (BB), which is down from 1.4 BB a year ago.

In North Dakota, Dec. 1 stocks were 212 MB in total for wheat, which is up from 186 MB a year ago.

“Of note is producer stocks versus what has moved into the market. That indicates producers are still holding a fair amount on-farm,” he said.

Of the 212 MB on hand this year, about 140 MB are still in producer hands. Only 70 MB are at the elevator or mill. A year ago, there was 96 MB in producer hands and 90 MB held by elevators or mills.

“So, obviously, producers do have some bushels to market going forward,” he said.

Looking at current prices, Peterson noted local cash prices were anywhere from $8.72-$9.02 as of Jan. 17.

“There just seems to be some general weakness in the market until we can confirm some demand,” he said.

Looking at the Minneapolis Grain Index, spring wheat was at $8.90 on Jan. 17. On Jan. 1, it was at $8.98, and Dec. 1, it was $9.06, so it’s been in a general downtrend. Hard red winter wheat has taken a sharper decline and was at $8.55 on Dec. 1, but is now down to $8.11.

“Spring wheat has been able to pick up some pretty good domestic demand because of hard red winter’s narrower price spread to spring wheat, and that may shift a little bit if hard red winter keeps slipping lower,” he said.

Overall U.S. wheat export sales are at 555 MB, down 6 percent from a year ago. Hard red spring sales are at 165 MB, up 4 percent from last year. In both cases, sales are running behind projections.

“USDA didn’t adjust exports in its January report, but we’ll see going forward if we are able to garner some sales in late January and February,” he said.

“Exports are still a challenge. U.S. stocks are at a 15-year low, so that’s supporting our prices and that’s paired against record Australian production and a collective push by a lot of world entities to keep wheat from Ukraine and the Black Sea moving,” he continued, adding that Canada has been very strong early on with their exports through November up 54 percent from a year ago.

Going forward the market is going to start shifting more to the 2023 outlook, but wheat will need to do some work in the market.

“In corn, we’ve got some of the strongest basis levels in 20 years and some decent cash prices and a little bit stronger market since November. Soybeans are similar. That market has been up $1 a bushel since November due in large part to dryness in South America,” he said.

“So as we get closer into February, where crop insurance prices are set, hopefully we can catch a rally. I still think wheat will compete in a lot of areas. Historically, it’s at an attractive price, but with a lot of these other crops making some gains, wheat is going to need to do its part, as well,” he concluded.

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