Spring Wheat

USDA came out with its long awaited Prospective Plantings Report on March 29 for wheat and other crops. Market reaction to the report, primarily because of old crop inventory estimates for the major commodities, which were also released, was somewhat bearish, according to Jim Peterson, marketing director for the North Dakota Wheat Commission.

USDA conducted the survey in early March to gauge how much of each crop producers were intending to plant in 2019. The agency also provided its estimate of March 1 stocks for all the major crops.

Peterson pointed out that of the two main factors in the report, the inventory estimates were more of a short-term issue for the market to consider, and that the planting intentions were more of a long-term issue.

“The overall reaction of the market was bearish simply because the March 1 inventories, especially of corn, but also of wheat, came in higher than what analysts were expecting, either indicating that demand is running a little less than what people expected, or the crop production estimates were probably understated from the fall report,” Peterson said. “We’ll get an adjustment when USDA comes out with its April updated supply and demand report.”

Regarding crop inventories, USDA came in with an inventory of 8.6 billion bushels of corn. Analysts had been estimating 8.3 billion bushels. Soybean inventory was pegged at 2.7 billion bushels and the trade was expecting 2.68 billion. Wheat was estimated at 1.6 billion bushels which was slightly higher than the 1.56 billion the trade was expecting.

Following the report the market sold off on Friday, according to Peterson. He added, however, that the market did show some recovery the following Monday, April 1, but wheat has continued to face mixed market trends.

“We’ll see if that continues because the bigger issue which is taking center stage is planting delay concerns, especially in parts of the Corn Belt with the recent flooding,” he said. “The extended forecasts are being looked at quite heavily and some are pointing to a wetter, albeit warmer spring. The warmer spring is helpful especially as cold as we were in February and March, but the weather patterns are drawing some concerns.”

Also playing into the market was the planted acreage numbers that came out. Going into the report the general theme was higher corn, lower soybeans nationally. In the 4-state region of the Northern Plains, higher hard red spring wheat plantings and lower durum plantings were expected. When the numbers came out estimated corn acreage was 92.8 million acres, up 3.7 million from a year ago, but more importantly it was about a million and a half more acres than analysts had been expecting, Peterson noted.

Soybean plantings came in at 84.6 million acres which was down 4.6 million and about a million and a half less than analysts had been expecting.

Wheat came in at 45.8 million acres for all U.S. wheat which was down 2 million acres from a year ago, but about a million less than analysts had been expecting.

“The survey was taken the first part of March so obviously variables have changed since that period,” he said, adding that planting delays are becoming more of a concern which may actually help soybeans. If planting is delayed too long there may be less wheat and corn acres and farmers may switch to soybeans which can be planted later.

Regarding price trends, Peterson said there really hasn’t been much to get excited about in any commodities.

“But the hit that corn took after the report may have lessened some of that incentive to expand corn acres. We’ll see what happens going forward,” he said.

Going in to the report, analysts were expecting a 3 percent gain nationally for overall U.S. spring wheat acres but it actually ended up being a 3 percent cut, according to Peterson.

“That should be supportive to prices, certainly the July-September futures, more into the new crop positions,” he said.

Total hard red spring wheat acres in the U.S. were estimated at 12.4 million. That compares 12.7 million a year ago. North Dakota was up 2 percent to 6.7 million acres. Minnesota spring wheat acres were down 5 percent to 1.5 million and South Dakota was down 3 percent to just a little over a million acres compared to a year ago.

“Montana was the big surprise where spring wheat acres dropped 10 percent down to 6.2 million,” Peterson said. “That was the factor that took us lower for the region. People had expected more of the durum acres in Montana to switch to spring wheat. That may still happen going forward.

“There’s a lot of ground yet to cover in terms of which crop producers put in, but up in this area pulse crops are not as attractive as recent years,” he continued. “Canola is somewhat attractive, but nothing stellar in terms of price outlook. Actual planting conditions are going to drive the final acres and even the weathermen don’t know what that will bring.

“This report is generally something that producers react to. The initial price direction was not positive and hopefully that turns around here in April,” he added.

In the coming weeks and months one of the bigger factors for the market to consider will be the weekly crop condition reports that USDA will being in April. Of course, the condition of the hard red winter wheat crop will be followed closely.

“As an aggregate the hard red winter wheat region has probably had some of the best soil moisture conditions they’ve had in many years,” Peterson said. “They’ve typically battled perpetual drought, but we’ll see what happens. They’re still vulnerable to cold snaps, but at least the initial ratings seem to indicate a better crop than a year ago and soil moisture conditions are good.

“But, as mentioned earlier, the bigger market mover will be monitoring the progress in corn and soybean planting as it works from south to north,” he added.

The numbers included in USDA’s latest report are projections and speculation, Peterson pointed out. In terms of real demand, U.S. overall wheat exports as of March 21 continue to run better than a year ago with 870 million bushels sold. That’s up 4 percent from last year, but slightly behind the pace needed to reach USDA’s goal. Spring wheat sales total 238 million bushel vs 217 million a year ago. That’s up 10 percent, but also behind USDA’s projection. That means the U.S. will need to see better exports for the next couple months to reach the USA goal.

In Canada, export shipments through February (the first 7 months of their marketing year), are running 19 percent ahead of a year ago.

“Their big markets where they’ve had success includes Indonesia where sales are up 40 percent,” Peterson said. “Sales to China are more than double what they were a year ago. Half of Canada’s year to year gains are due to their added sales into China because of the tariffs on U.S. wheat. And they’ve seen some pretty strong prices for spring wheat in parts of Canada to meet those shipments. Their spring wheat prices are running a bit stronger than U.S. prices right now.”

Locally, U.S. spring wheat prices in some locales have dropped down to $4.70 a bushel while others are in that $5.20-$5.25 range creating an average of $5.

“The disappointment in nearby wheat values probably is reflected in the higher old crop inventories for wheat,” Peterson said. “Nationally, wheat stocks are higher than expected.”

Looking at North Dakota, for example, all wheat inventories as of March 1 were at 235 million bushels. That compares to 158 million a year ago and some of our highest levels in recent years. North Dakota’s share of overall U.S. stocks is 15 percent vs 10.5 percent last year. Sixty-six percent of current North Dakota inventories are still in on-farm positions.

“Producers are carrying over a fair amount of last year’s crop. I think that’s a reflection of a very good crop locally last year. Spring wheat had its largest crop in 20 years,” he said. “But also the market incentive has not been there to move the crop.

“Obviously producers will be anxious to get in the fields which will require an even larger price incentive to move inventories,” he continued.

“That’s kind of where we sit. We’ve got some new numbers to work with, but the more immediate factor is going to be when we can get in the field and how quick a pace the crops can be put in.”