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Volatility continues in US wheat market

Spring wheat

Since passing the Fourth of July holiday and entering a key part of the growing season, one word – volatility – best describes what’s happening in the U.S. spring wheat market, as well as a number of other grain commodities.

“With spring wheat, we continue to see a lot of volatility in the market with the general trend being steady to lower on prices,” said Jim Peterson, market director for the North Dakota Wheat Commission. “That’s due to good crop prospects, as well as optimism that there will be an agreement to increase the level of Ukraine exports, both old crop that’s already in port positions in Odessa, as well as the new crop that’s being harvested right now.”

Looking at the Minneapolis September futures, since June 30, the price has ranged anywhere from $9 a bushel to $10.40 in just over a three-week period, meaning there’s certainly a lot of volatility.

“The market seems to be wanting to find some support at the $9 level, but we’ll see if that’s able to hold going forward,” he said, adding that subtracting the basis levels will give the price at the local level, meaning cash prices to producers are anywhere from about $8.50 to $8.76.

Peterson said there might be some selling by producers at those levels, though not on a heavy level. Generally, it’s just a lot of paper trading on the futures.

“On a positive note, the decline in prices has brought the U.S. into a much more competitive situation export-wise, so we are starting to see an acceleration of U.S. exports,” he said. “If we look at what the market is retreating on, it’s basically the current crop prospects.”

The overall U.S. spring wheat crop is rated 71 percent good-to-excellent and 6 percent poor-to-very poor. That’s like night and day when compared to last year when only 11 percent was rated good-to-excellent and 63 percent was poor-to-very poor. By state, North Dakota’s crop is rated the highest with 80 percent good-to-excellent, followed by Minnesota at 71 percent, South Dakota at 67 percent, and Montana at 50 percent.

The big concern, according to Peterson, is the maturity of the crop. As of mid-July, just 68 percent of the overall U.S. crop was headed, which is well behind the average of 90 percent for this time. By state, North Dakota and Montana’s crop was only 63 percent headed, whereas South Dakota was at 91 percent headed.

“The recent heat has helped accelerate maturity, so we’ve closed the gap a bit, but some areas of the region are still as much as 3-4 weeks behind normal in development,” he said. “So we are going to need a later fall and a favorable harvest period to bring in the later crop.”

Disease threats have also increased with the recent humidity, and that will have to be watched closely.

“Even though we’ve had heat, dryness doesn’t seem to be a big talked about issue by growers yet just because we’ve got a pretty good moisture profile,” he said. “A dry period might benefit some areas in helping to temper disease pressures,” he added.

USDA confirmed the good crop prospects in its July 12 report, coming out with an initial yield estimate of 47 bushels per acre for U.S. hard red spring wheat. That compares to 32.6 bushels last year. By state, Minnesota is the highest at 53 bushels per acre, North Dakota is at 51, South Dakota is at 48, and Montana is at 28.

“One could argue that's a pretty lofty projection this early for North Dakota and Minnesota considering the lateness of the crop, so it may be the highest figure of the year. Nonetheless, it took a little bit out of the market with those yield estimates,” he said.

For comparison, the U.S. winter wheat yield estimate was 48 bushels per acre. However, that region had more drought down in Oklahoma, Texas, and Kansas. Last year, the average winter wheat yield was 50 bushels per acre.

Current harvest progress for the U.S. winter wheat crop, which has also added pressure to the market, was at 70 percent complete in mid-July, which is on track with the normal pace. Kansas is essentially done with harvest, while in Nebraska and Colorado, harvest was 60 percent complete. South Dakota was at 25 percent and Montana was at 10 percent.

“The quality of the crop has been excellent with very high protein, which could impact spring wheat prices to some degree and spring wheat demand,” Peterson said, adding that protein was averaging 13.3 percent. That compares to 11.9 percent last year and 11.8 percent on average.

“The only Achilles heel on the crop is some smaller kernels, some lighter thousand kernel weights. Nonetheless, it seems to be a pretty marketable crop,” he said.

“We’ll see what the rest of the harvest holds in South Dakota. They have very good crop prospects, so we may see protein levels drop a little as they get into South Dakota, and even the North Dakota harvest, though we don’t have a lot of bushels,” he added.

Peterson also noted that the U.S. is starting to see an acceleration in export sales. Overall U.S. wheat exports are at 259 million bushels (MB), which compares to 261 MB a year ago. Hard red spring wheat sales are at 73 MB so far this year compared to 79 MB a year ago. The U.S. is still behind in the Philippines and Japan, the country’s two biggest markets, but it’s seeing much better demand in South Korea, Italy, Thailand and countries in the Caribbean and Central America.

That parallels what USDA did in its initial supply and demand projection for hard red spring wheat. It showed a notable increase in domestic mill use after a pretty low year last year, and also higher exports.

“On a positive note for spring wheat, even though the initial crop projection was higher than anticipated with the strong yields in North Dakota and Minnesota, with the better demand prospects they’re still looking at lower ending inventories for June of 2023 than June of 2022,” he said.

“The supportive factors now on the world level are extreme dryness in the European Union (EU), as well as Argentina, and war impacts in Ukraine, such as Russia burning wheat fields that are ready to harvest. Those have cut into production. (On the other hand), there are higher prospects in Canada, Russia and the U.S.,” he continued. “Those are the headwinds that will continue to face the market, and global harvest is going to continue to expand for the next month or two.”

Peterson also noted that there is “pretty good resolve” by U.S. and EU government officials to get corn and wheat out of Ukraine. Unfortunately, it’s likely to work against their own producers in terms of price impacts.

“But there’s a lot of concern about global food shortages and food inflation, so that resolve is not going to back off. There’s still a lot of skepticism, but if that does prove successful, it will have an impact on markets,” he said. “Also, the good crop prospects can’t be denied. We have a pretty good looking wheat crop considering the challenges we had this spring.”

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