Although market fundamentals remain relatively stable, outside factors, mainly the ongoing coronavirus pandemic and the downturn in the economy, have continued to put downward pressure on spring wheat prices
“As spring wheat planting has gotten underway, unfortunately, prices continue to see negative pressure,” said Erica Olson, marketing specialist for the North Dakota Wheat Commission. “When we look at the Minneapolis futures, we’re down almost 40 cents in the last two weeks. A lot of this is related to the general weak economic conditions we’re facing and also the dollar has gotten quite strong.
“Not a lot has changed to the wheat fundamentals, so I think it’s these outside factors impacting prices the most,” she added.
To a lesser degree, other factors that are contributing to put pressure on prices is the fact that crop conditions in the U.S., and around the world, are fairly good and there are some dry areas that have been getting rain lately. As a result, cash prices have taken a hit and were ranging around $4.20-$4.65 across the region.
Planting has gotten underway in the region, and so far, Olson said it’s been an interesting year. Generally, she noted, planting starts in the southern part of the region and moves north, but this year the latest reports indicate that progress seems fairly even across the region.
“The weather has finally gotten warmer, but producers are dealing with wet soil conditions and also acres of unharvested crops,” she said. “I think though, that as we get into May, if the weather cooperates most farmers will be into full swing fairly soon.”
USDA released its latest crop progress report on April 27, which indicated that about 14 percent of the spring wheat crop in the U.S. was planted. That compares to 11 percent last year and quite a bit below the average of 29 percent. North Dakota was at 5 percent planted, which is similar to last year, but behind average.
In regard to the acreage numbers, the March planting intentions report had indicated spring wheat acres would be down 9 percent in North Dakota. But, Olson noted, just with some of the changes in market conditions, there is some thinking that spring wheat acres may possibly be higher than expected, especially given the situation in corn with demand and prices down for that commodity, however, it’s really anyone’s guess what the final acreage will be.
Looking at the winter wheat crop, the latest crop progress report showed a decline in crop conditions, so that now just 54 percent is rated in good-to-excellent condition. That’s down 3 percent from the previous report.
“A couple things to watch is that that hard red winter wheat region did have very cold weather earlier this month and we are starting to hear reports of freeze damage,” she said. “That will be closely watched because I feel like we hear reports of that every year and then the crop may turn out fine. But we’ve been hearing in certain areas that it’s severe damage.”
Another factor for winter wheat is that it is getting a bit dry in some of the western growing areas and that will be watched closely, as well.
Also, in the European Union and some of the Black Sea countries, there was growing concern that they were seeing dry conditions. However, there has been some rain in a lot of those areas recently and more precipitation was in the forecast coming up.
Domestically, Olson pointed out that over the last month there has been strong demand for flour, bread and other wheat-based staples and that mills did have to ramp up their capacity.
“But, for the most part, it seems they’ve mostly caught up to that demand,” Olson said. “On the other side, obviously, there has been a big decline in restaurant and other food service demand.”
That has also had an impact.
“We’ll have to see how that plays out as restaurants and other businesses start to open, but it’s obviously going to be a slow process,” she added.
Probably the biggest concern right now for the industry, according to Olson, are these supply chain issues. The coronavirus has had a big impact in the packing industry with workers becoming ill and some plants being forced to shut down, at least temporarily. So far, thankfully, it has been much less of an issue for the wheat and flour industry as “for the most part things are up and running,” but it’s something to keep a close watch on.
One factor that did give some support to the market was that Russia and Ukraine announced restrictions on exports, although, it’s difficult to say how much effect, if any, this may have on prices.
“Russia had placed limits on exports through June, and it appears they’ve already met that export quota, so there may not be more sales from that country,” Olson said. “But there seems to be a bit of confusion on how exactly that’s going to work.
“Ukraine has also announced that they may ban exports once they’ve reached a certain level. They haven’t yet, however, there is continued talk about that,” she added.
On the demand side, looking at U.S. wheat exports, sales have slowed a bit the last few weeks, although that’s actually somewhat normal for this time of year as a lot of the sales transfer to the new crop marketing year, Olson explained. So far, total U.S. wheat sales are at 936 million bushels (MB), which is just a little higher than last year’s total of 931 MB at this time. Looking specifically at hard red spring wheat, sales are about 7 percent higher than a year ago with sales at 273 MB.
“USDA’s estimate for the year is 275 MB, so we should be able to hit that if most of those sales are shipped,” she said. “There are four weeks left in the current marketing year and if those sales are not shipped by May 31, technically the sales are entered into the next marketing year. It’s a timing thing. USDA’s number is actual exports, not sales.”
Lastly, Canada was supposed to release its planting intentions report by April 24, but that has been delayed until May 7.
“Right now, the big things for the market include watching planting progress,” she said. “The uncontrollable thing though is the outside market pressure, the dismal economic outlook and some of those things that will likely continue to pressure markets.”