Spring wheat hit a little bit of a slide in prices as we hit the middle part of July.

“Prices have probably fallen back 25-30 cents on generally good crop conditions and seasonal pressure,” said Jim Peterson, marketing director with the North Dakota Wheat Commission on July 20. “It’s not unusual to see the market drop back a bit as we’re approaching harvest. We’ll see if that turns around, but I think there are some positives building on the world market, as well as just technically. Hopefully, that will limit the amount of declines that we see.”

Looking at current cash prices, $4.50 per bushel is a good average across the region with lows around $4.20 in some western locations to $4.60 in the eastern part of North Dakota. In Montana, some locales are around $4.90 a bushel.

“Nonetheless we have slid back,” Peterson said. “We got a little bit of a bounce in late June and early July on the corn acreage report and also a little bit because of less spring wheat planted than many had anticipated. But as we progress forward, some of the winter wheat harvest has been better than expected, still not a bumper crop, but a little bit of a surprise to the market.

“With the rains we have received in the spring wheat region, albeit too late for some areas and too much for other parts of the region, in general the crop is in a much better situation than it was toward the end of June when we were battling overly dry conditions in a lot of the region” he added.

Peterson noted that Chicago futures have moved back to a premium over Minneapolis futures, which is a rarity, although it did happen last year for a period, too.

“I think what’s driving that is Chicago has more fund activity, non-commercials in the market,” he said. “After the acreage report we’ve seen some short covering buying out of short positions which provide support. Also, Chicago is driven more by some of the world fundamentals and the Black Sea crop went lower in production and potential export threats since the latter part of June, so that’s lent some support to world prices.”

He also pointed out the European crop is also suffering in terms of production. So all those have been supportive for Chicago. Whereas Minneapolis is driven by what’s happening with U.S. spring wheat, as well as Canada, which has had improved growing conditions and moisture patterns.

“The one caveat I’ll put out is that current crop progress rating numbers for U.S. spring wheat, as of July 19, indicate that 90 percent was headed,” he said. “That’s slightly ahead of a year ago when it was 88 percent headed, but slightly behind the five-year average of 94 percent.”

Across the region Montana is the least developed with 80 percent headed. Whereas South Dakota and Minnesota are at 98 percent.

With a lot of the crop in that critical heading stage, Peterson said Fusarium disease pressures are starting to get more concern. Also, there is more evidence of bacterial leaf streak. Both of those have an impact on potential yield depending on severity.

“Of course, Fusarium can become a quality issue depending on whether a fungicide is used or not and just the extent of the spread of the disease,” he said. “We’ll have to see what happens. Those could both start to impact crop condition ratings as we go forward.”

As of July 19, the overall spring wheat crop was rated 68 percent good-to-excellent. That’s steady with the past couple weeks, but a little lower than last year when 76 percent was rated good-to-excellent at this time. Across the region, the lowest ratings are in North Dakota and South Dakota at just 62 percent good-to-excellent, and the highest are in Montana and Minnesota at 75 percent.

On July 10, USDA provided its first production yield estimate for the U.S. spring wheat crop. Yield was estimated at 46.6 bushels per acre (BPA), which is down 3.5 percent from a year ago. That parallels the current condition ratings for the crop somewhat. Yields range from 38 BPA in Montana to 57 BPA in Minnesota. North Dakota is estimated at 45 BPA, which compares to 49 BPA a year ago, about 8 percent behind last year.

“Visiting with a lot of producers, most areas have a good crop, but it still has a ways to go, and most areas are looking at an average type crop, not the well above average across much of the state like we’ve had the past couple years,” Peterson said. “We’ll see what impact disease pressures or maybe some late-season heat might have on final yields.

“As of mid-July and as we get closer to harvest, some of those areas that were impacted by the early drought are becoming more evident,” he continued. “There are areas that are only going to yield in the 20-25 bushel per acre range.”

On the demand side, Peterson said the fact that the U.S. has struggled to be competitive on the world stage has been a drag on exports, even though world prices are starting to improve.

“There are some expectations that for some of the classes, especially soft red winter wheat and hard red winter, that we would have captured a bit more exports to date, but we are improving,” he said. “Hopefully that will continue, especially if the Russian crop is set back a bit and they’re a little less competitive.”

As of mid-July, U.S. exports stand at 305 million bushels (MB) sold. That’s up 5 percent from 290 MB last year. Hard red winter wheat is equal to a year ago at 117 MB in sales. Soft red winter wheat is running behind a year ago. Hard red spring wheat is doing very well at 92 MB in sales, which is up 30 percent from a year ago.

“For both hard red winter and hard red spring, the recent purchases by China have been very positive for the demand front,” he said, adding that to date China has purchased 24 mB of hard red winter wheat and 8 MB of hard red spring wheat. That puts them as the U.S.’s number two buyer for overall wheat and number three for hard red spring.

Japan is running 50 percent ahead of a year ago with 12 MB in purchases. The Philippines are running about 15 percent ahead of last year and are already at 25 MB in sales. Where the U.S. is struggling a little is in parts of Europe and also Central and Latin America. For example, Mexico was a big buyer last year, but U.S. sales are running 40 percent behind this year.

USDA recently came out with some updated supply and demand numbers, but they didn’t adjust export projections for the U.S.

If we start to capture a better sales pace, USDA will likely adjust that in a later report,” he said. “However, USDA is still projecting the U.S. will export less than a year ago.”

Looking at hard red spring wheat, in the first supply and demand estimate, USDA raised overall supplies slightly to 850 MB vs. 838 MB last year. Even though U.S. production is expected to be down 20 MB, the U.S. is starting the year with more inventory and USDA is also projecting slightly higher imports, which raises U.S. supply, Peterson pointed out.

Also on the demand side, USDA is looking at exports equal to a year ago, but on domestic food use USDA is projecting a record year for spring wheat of 271 MB. That’s up from 265 MB last year and up from the previous record of 267 MB in 2013.

One of the drivers for higher domestic use is being attributed to lower than expected protein in the hard red winter wheat crop, although the latter harvest has been showing some higher protein.

Hard red winter harvest is now about 75 percent complete nationally. About 80-90 percent is complete in the Colorado/Nebraska region; about a third in South Dakota; and less than 5 percent in Montana.

“The Montana and South Dakota winter wheat crops are some of the best of the bunch this year with some strong yield prospects. The early anticipation is that they will be lower than average protein due to that,” he said, adding that to date, with about half the harvest samples analyzed for hard red winter tested, protein is running about 11.8 percent protein.

“The industry likes 12 percent. Last year protein was at 11.3 percent,” he continued. “Some of the initial harvest was starting lower than last year, down around 11 percent, but they progressed higher with some of the drought states in Colorado, Kansas, and Nebraska. So we’ll see where the last half of the sample analysis turns out, if it slips back to that 11.5 percent.

”Overall, for hard red spring wheat we’re seeing some seasonal pressure in the markets. There are no major concerns with the crop yet, but I think it bears watching with some of the added disease pressure,” he concluded.