Spring Wheat

Spring wheat prices seem to be holding in a trading range that hasn’t fluctuated much one way or the other over the past several weeks.

“With spring wheat we continue to hold in a trading range. It seems like the nearby Minneapolis futures are locked in at that $5.15 to $5.30 price range and cash prices are holding in at $4.40 to $5.20 across the four state region,” said Jim Peterson, marketing director for the North Dakota Wheat Commission.

“We’re also in a transition between the old crop situation and getting more and more into new crop prospects,” he continued. “Also, spring wheat is being counter-influenced by what's happening with the world wheat crop overall, as well as the winter wheat harvest in the U.S.”

Looking at where prices have trended since the first part of April, Peterson said cash corn in the U.S. at that time was $3.08 per bushel and is now holding at $3.10 after dipping to about $2.75, so corn seems to have recovered a little bit. Hard red winter wheat was about $4.43 in April and has drifted down to around $4.06, but that’s right in the middle of winter wheat harvest. Prices had been as high as $4.70, so certainly there’s some pressure in that class of wheat.

“Hard red spring wheat at the first part of April was around $5.08 per bushel and is now down to about $5 right now, indicating there’s not as much pressure as the winter wheat classes.

“But, as we said, it’s kind of been stuck in a trading range of around $4.80 to $5.20 and I think the market is just waiting to see what factors might drive it out of the current trading range,” Peterson said.

“We’ve got expanding drought in parts of the western spring wheat region, primarily western North Dakota, but also in parts of central North Dakota and eastern Montana,” he continued. “Spring wheat has not been able to get a lot of market reaction right now, but if dry conditions continue into early July, certainly that’s going to have to command more market reaction.

“I think part of it is the trade is not really sensing any tightness right now,” he added. “We have comfortable old crop stocks and everybody’s waiting for the June 30 planting report for spring wheat. There’s some debate where final acres might end up. In March, indications were for about a 10 percent cut across North Dakota and some lower spring wheat acres in Minnesota, which was mostly offset by increases in Montana and South Dakota.”

Since that time, with the drop in corn prices in April, Peterson said many were thinking we recovered all those spring wheat acres in North Dakota and would end up net higher compared to a year ago, as well as Minnesota.

“If that’s the case, and we end up with more spring wheat acres than expected this spring, that can certainly help offset any yield decline with dry conditions,” he said. “But if the June 30 report doesn’t show that pick up in spring wheat acres, then obviously yield is going to have to command more attention. Those are some potential positives.”

On the other hand, there are also some potential negatives facing the market. The European Union and Russian crops were experiencing some very dry conditions in late May/early June, although that has stabilized recently so there doesn’t appear to be as much concern on the world level. Also, U.S. producers are in the middle of hard red winter wheat harvest.

“As we continue to see pressure on those classes, it makes it more challenging for spring wheat to rally,” he said.

One potential positive that bears watching is lower protein trends in some of the early winter wheat harvest. If that continues as the harvest moves further north, domestic mills will need a bit more spring wheat to offset the lower protein. But that’s going to take some time to play out.

Peterson also pointed out some other new fundamentals in the market. USDA on June 11 provided an updated supply and demand report, as well as winter wheat production estimates. Overall, the report was considered bearish to prices. The world wheat crop was raised again due to a record crop in India and a big rebound in Australia compared to last year’s crop. Looking at other major players, Russia is looking at a larger crop compared to a year ago and Canada’s spring wheat crop is slightly larger, so right now there’s not a lot of production concerns in the world market.

“USDA, reacting to that in its updated supply and demand report, did keep U.S. export projections for next year at about 2 percent less than 2019 just based on better world crop prospects,” he said. “Certainly some of that can change, but as of right now, that’s what the market is fighting against in terms of trying to get some more traction for stronger prices.”

In the June USDA winter wheat production estimate, yield is projected at 52 bushels per acre nationwide, which is up a half-bushel from May but still lower than last year’s 53.5 bushels per acre.

“I think somewhat surprising to the market is that Kansas, Oklahoma, and Colorado are facing some significant drought, as well as western Nebraska with some recent hot, dry weather,” he said. “But instead of lowering yields from the May to June report, USDA actually raised yield potential in both Kansas and Nebraska. That was a little surprising to the market. We’ll see if they make some adjustments in July.”

Early harvest results are variable on yield, but in more areas it’s better than expected, Peterson noted, adding that there have been excellent test weights thus far so it’s only been protein that’s been a bit disappointing. But the harvest is just getting to the heart of where the drought is in Colorado and western Kansas. Nationally, the winter wheat harvest is 15 percent complete, which is right on pace with Kansas at 10 percent and Oklahoma and Texas at 70-80 percent harvested.

“The best winter wheat crop is in South Dakota and Montana,” he said. “Montana has just a phenomenal crop in the making with 82 percent rated good-to-excellent, but it’s only about 30 percent headed as of mid-June. Typically it’s 50 percent, so it’s a bit later in development.”

As for hard red spring wheat, drought conditions have been expanding. However, as of June 22, that really wasn’t showing up in the weekly crop ratings. A lot of western North Dakota probably had only a half-inch to an inch of rain all spring, but the crop does have subsoil moisture to go on. But if temperatures crank back up to high 80s and 90s, the region will start to see more drought impact on the crop if they don’t get some rain. About 4 percent of the crop was headed as of mid-June compared to the five-year average of 8 percent.

“The crop is a little behind, but the heat and dryness is pushing that,” he said. “The market will continue to watch what happens with the spring wheat region, as well as what develops with the winter wheat harvest.”

On the demand side, in the USDA supply and demand reports that came out in mid-June, domestic food use in the U.S. is up to 964 million bushels (MB), up marginally from last year’s 962 MB and 955 MB in 2018.

“With some of the in-home isolation and teleworking that a lot of people are doing, we are seeing more in-home consumption of flour and bread products, so that is reflected in the report, but probably not as much as anticipated,” Peterson said. “But we have to remember we are still seeing a pretty sharp decline in restaurant, industrial, hotel and tourism type demand with the slowdown.”

Regarding exports, USDA is looking for lower exports this year for the U.S. with more competition from Australia primarily, but also the Black Sea region. Current export sales are 233 MB, which is equal to a year ago, even though USDA is projecting about a 2 percent decrease.

“That stands to reason. We have stocks available and Russia probably won’t be real big competition until they get into their harvest in a month or so,” he said.

By class, hard red winter wheat sales are slightly behind with 86 MB sold compared to 96 MB last year. Hard red spring wheat sales are at 70 MB compared to 56 MB a year ago, which is up 30 percent. Part of that is due to a strong sales push in May, but not all of that was able to be shipped out by the end of May, so it gets counted as the next year’s sales. USDA lowered 2019 exports by 4 MB because we were not able to get it all shipped out.

By country, the Philippines, Japan and China continue to be the biggest buyers of overall U.S. wheat.

“China has been a big buyer of hard red winter wheat and the anticipation is that they will probably buy more hard red winter wheat, but as the U.S. gets into hard red spring wheat harvest they will start looking at hard red spring,” Peterson said.

A couple regions that Peterson is going to be watching include Mexico, which was behind a year ago in purchases. Mexico may be waiting for a price break or to see what protein levels are in the U.S. hard red winter wheat crop. Nigeria has also been a little slower with purchases and part of that might be waiting for more trends out of the Black Sea region.

“We’re approaching a crucial stage in the spring wheat crop and we’ve got some reports coming out at the end of the month, like the final planted acreage report, which could influence the market,” he said. “The first official supply and demand outlook for hard red spring wheat will come out in July. Weather trends and updated USDA numbers are going to be factors that will influence the market, but as of right now, it seems the market is content to hold in its current trading range. We’ll see if there’s something going forward to break it out of that trading range to the upside.”