The wheat market has had some new factors to work with recently, namely some USDA reports and the weather. However, the markets were still in their “recent trading ranges.”
“Most of the cash prices are now linked to the September Minneapolis futures as we’ve gotten into the month of July and since the region caught some rains, which kind of relieved some of the dry areas that has added some pressure on the spring wheat markets,” said Jim Peterson, marketing director for the North Dakota Wheat Commission.
“It’s still too early to say (the rain) really benefited the crop as much as the market has retreated. Probably not in all areas of the state, but I guess the perception is that those rains came pretty timely and covered a lot of areas that were getting quite dry,” he said. “The futures market is still kind of stuck in that $5-$5.20 range. We’ve seen cash basis levels kind of erode a little bit, get a little bit weaker, so that hits our cash values a bit more. The Minneapolis spring wheat index, which is a reflection of the regional prices in the four-state region, is about $4.80 a bushel, which is down about 20 cents since early/mid-June.”
Looking across North Dakota, cash prices for 14-protein spring wheat range anywhere from as low as $4.30 to a high of about $4.70. Those levels are similar to a year ago.
The new information the market has had to digest or work with includes the June 30 final acreage report from USDA. In somewhat of a surprise, spring wheat acreage fell from the March intentions, according to Peterson.
He noted that some of the expectations from the trade was that with the decline in corn prices in April and May that producers switched corn acres to spring wheat and that there would be an increase from the March estimate for U.S. spring wheat.
“But it surprised many that we went lower,” he said.
The current estimate for total spring wheat plantings across the U.S. is 12.2 million acres. In March, intended acres were estimated at about 12.6 million and last year farmers planted 12.7 million acres.
Where one of the bigger surprises came was in Montana, Peterson noted. In March, Montana was intending to put in 3.3 million acres of spring wheat, but the June survey actually showed they only put in 3 million.
“That’s still slightly higher than a year ago, but nonetheless, somewhat of a surprise that it fell by
300,000 from spring intentions,” he said.
Spring wheat acres in North Dakota are now estimated at 6 million acres, slightly less than the 6.1 million that was estimated in March. Last year, North Dakotans planted 6.7 million.
“Obviously, there were more durum acres put in across western areas and that was expected with durum prices holding more steady through the spring and spring wheat prices declining,” he said. “But in the central/eastern part of the region, I think it shows that the wet areas were bigger and more pronounced than many had expected, so a fair bit of prevented plant acreage took place and that impacted corn primarily, but also wheat and even soybeans to some degree.”
On the upside, Peterson said North Dakota is still the leading wheat state in the U.S., as far as planted acreage, with 6.8 million, just slightly ahead of Kansas at 6.7 million.
Also in the report, Peterson said USDA did something that will probably be debated through the growing season, lowering the estimate for corn acreage well below market expectations.
“From March to June, there was a 5 million acre decline in expected corn plantings, so we’re only planting 92 million acres,” he explained. “The trade was expecting about a 2 million acre decline, so obviously a lot of that is some of the prevented plant up in our part of the region, but there’s still a lot of unknowns as far as where some of that acreage went to. For example, if we look at the U.S., the four big crops – corn, soybeans, cotton and wheat – only accounted for 232 million acres this year. That’s down about 6.5 million acres from March.
“Obviously, prevented plant was not accounting for all of it, so I think some are speculating that the impacts of COVID, not just financially, but in other areas as well, may have just kind of tempered producers’ enthusiasm for putting in additional crops this year, especially when most crop prices are only at break even or lower,” he said.
“For a short term, it did provide a little bit of a boost to the market to see some of the new crop positions, but now we’ve gotten back into a little bit of increased volatility in the markets,” he continued. “We’ll likely follow a lot of big weather speculation through the month of July with the end of the month corn pollination coming up and in our region monitoring crop changes due to some very beneficial, timely rains the latter part of June.
“Some crop was probably too far along to benefit from the rain, but certainly there’s a segment of the crop that has been stabilized and probably even seen a little yield boost, so we’ll see what July brings.”
The rain and more humidity in the air has heightened disease pressures, so producers will have to be vigilant for that. And there are some areas that have missed out on the rains, so if the region returns to a hot, dry forecast that could impact the crop.
The current condition rating for the U.S. spring wheat crop is 70 percent good-to-excellent. Peterson noted that across the region the best conditions are in Montana with 82 percent rated good-to-excellent. The poorest are in North Dakota, where the June drought was most intense, with 61 percent rated good-to-excellent.
As far as crop progress, about two-thirds is headed. That compared to only 50 percent headed last year at this time, so the crop is maturing a little faster than a year ago, but still slightly behind the typical level of 70 percent.
Across the region, the most advanced crop is in Minnesota and South Dakota where about 90 percent is headed and the latest developing crop is in Montana where only 50 percent is headed.
As far as other market dynamics, winter wheat harvest continues to roll along with 56 percent harvested as of the last week of June. That’s up from 42 percent a year ago.
“No major concerns so far. There have been some rain delays, but for the most part, it’s come off pretty steady,” Peterson said.
Oklahoma and Texas are essentially done with harvest; Kansas is about 80 percent and Nebraska about 16 percent. South Dakota and Montana haven’t started yet, but will start in the next 2-3 weeks.
“As far as early yield reports, it’s been pretty variable, but some areas that were quite dry earlier or had some frost are maybe yielding a bit better than anticipated, still below average, but that’s been somewhat of a surprise to the market,” he said.
Average protein levels have come up a little bit since early harvest, but they’re still running about 11.2 percent on average. The 5-year average is 11.7 percent.
“Hopefully that translates into better spring wheat demand depending on where the quality of our crop comes out,” he said.
As far as some other news, Stats Canada released its acreage report and similar to North Dakota they decreased their spring wheat plantings from the April intentions and increased durum. Canada’s spring wheat planted acres are down 5 percent from a year ago. Current crop conditions in Canada are 78 percent good-to-excellent for spring wheat.
“Their lowest ratings are in the southeast part of the region, which is closest to North Dakota, but as of now they have a pretty good crop in the making, albeit on a little bit less acres than a year ago,” he said.
On the demand side, even though the new marketing year is only one month old, U.S. hard red spring wheat export sales are running about 18 percent ahead of a year ago with 77 million bushels in sales on the books versus 65 million last year.
By region, the U.S. is seeing very good demand in Asia. The U.S. is up 50 percent in sales to Japan and up 60 percent to both Korea and Vietnam. Even in the European Union market the U.S. is running about 30 percent ahead of a year ago.
“The Philippines is still our top market, but they’re at such a high level that percentage-wise they’re not showing as much of an increase, but we’re still up 20 percent in the Philippines,” he said. “Where we have some concern is in Mexico and other parts of Central America. We’re running about 50 percent behind in sales to Mexico and about 15-20 percent behind in other parts of Central America.
“It could be that due to the fact that some of the highest COVID outbreaks are now in Central and Latin America and Mexico, along with the southern part of the U.S., and so I think that might be having a little bit of impact,” he continued. “Our Central American and Caribbean customers also rely on tourism and I think that’s obviously been slowed down if not shut down in some countries, so we’ll probably see a little bit of reflection there of somewhat declining demand. But nonetheless, it’s positive to be ahead of a year ago on sales so far.”
Peterson noted that a little bit of a drag on the market is overall U.S. wheat exports, which are only running even with a year ago.
“I think the market had been hoping for a little bit stronger start to exports ahead of Russia and Europe,” he said. “And, of course, as we get into the fall, Australia will have a bigger crop. Hard red winter is holding steady with exports of a year ago, but soft red winter is well behind, so hopefully we’ll see an increase in sales there.”
At this time, Peterson thinks the market seems pretty content with where things are and seems to be hung in a trading range. He also feels there could be some more strength building for wheat as we go forward as some of the early Russian harvest is reporting a little bit lower than expected yields and maybe not as strong an export program as many had looked for. Parts of
Europe have also turned dry again.
“In this region, hopefully we’ll be able to avoid some significant disease pressures now that we’ve got some wetter weather patterns across our growing region and that drier areas get some timely rains to finish out the crop,” he concluded.