Spring wheat

The first week of July is typically a time when the wheat market moves more dramatically one direction or the other based on acreage reports, crop conditions and weather. This year the market settled back.

“Usually at this point in the year we either march higher or slide lower. Unfortunately, this year the markets have set back in July from their May/June rallies,” said Jim Peterson, marketing director for the North Dakota Wheat Commission. “The winter wheat market has lost about 50 cents a bushel and spring wheat maybe 40 cents a bushel from the June highs. The corn market was setback about 40 cents a bushel as well.”

Peterson speculates that despite the late planting season and some overly wet conditions in a lot of areas, the June 28 acreage report from USDA came in with a higher corn acreage number than anticipated and that what prompted the setback.

“That was probably enough to setback some of the fund traders and speculators that had gone long in the corn market on planting delays and a significant acreage loss to sell out of their long positions,” he said.

“A lot of the analysts, producers and merchandisers realize that the USDA corn acreage number was too high, but we probably won’t get revisions until September,” he continued. “It added some uncertainty into the market.

“Along with that, we did not lose as many spring wheat acres as some people had anticipated, and to top it all off, we’re in the midst of a winter wheat harvest that was also delayed,” he added. “But we’ve had some clearer weather and the harvest results are better yields and better grade quality than many had thought with the overly wet June period.”

Peterson noted a number of things have come together to take out not all of the uncertainty out of the market, but a fair amount of the bullish momentum that had been building in June regarding 2019 U.S. crops.

Looking specifically at the USDA acreage reports for spring wheat, in March the surveys were showing 12.8 million acres would get planted. The June survey showed 12.4 million, down just slightly. Last year, the U.S. had 13.2 million acres of spring wheat, so acres are down not quite a million, but close.

“Many thought we could possibly lose upwards of half a million or a million acres from the March survey just with the challenging planting season,” he said. “So we lost 400,000 acres from the March intention, with 200,000 of those coming from North Dakota and the other 200,000 from South Dakota.”

South Dakota was about a 25 percent loss where producers typically only planted one million acres of spring wheat, so the drop was more significant. Peterson said many people had thought South Dakota is where the most prevented plant on spring wheat would be or producers would plant another crop because of earlier crop insurance deadlines.

Minnesota and Montana spring wheat acres held steady with March estimates, but they’re still down from 2018.

Current crop condition ratings for spring wheat look very favorable, and from a U.S. perspective, are very similar to a year ago at this time with 78 percent of the U.S. crop rated in good-to-excellent condition. In North Dakota and Minnesota, 80 percent is good-to-excellent.

In Montana, where conditions have been a bit drier and a bit more delayed in development, only 60 percent is good-to-excellent.

In general, the crop is delayed, probably a week to 10 days behind in development, but the market is not overly concerned at this point, according to Peterson.

The Stats Canada acreage report also came out the end of June and showed producers there planted less spring wheat than what was expected in April, not a significant number, but it was a little bit lower trend.

“So those are some positives going forward from a potential price standpoint that maybe our supplies will tighten a bit,” Peterson said. He added that recent rains have been scattered in nature recently, although the first week in July saw some broad, heavy rains across the region. “We’ll see if it hits some of the driest areas,” he said. “Canada is also still somewhat marginal for moisture. They’ve received some recent rain as well but are going to need more.

“With that we’ve taken some of the scare out of the market from a spring wheat production perspective, at least as of this stage,” he added.

On the hard red winter wheat crop as of July 7, 47 percent of the crop was harvested, slightly behind the five-year average. A year ago winter wheat harvest was 61 percent complete.

Kansas is typically 85 percent harvested by this time, but is only at 61 percent this year. Kansas was only at 30 percent the previous week so they’ve made some good progress in early July. Texas and Oklahoma are about 90 percent complete.

“Another price supportive issue was the delayed winter wheat harvest in June and we’ve had some clearer weather since, so it made progress,” he said. He added the soft red winter wheat areas of Ohio and Indiana are still very much delayed and probably looking at some quality loss as well.

“If we look at the quality of the early hard red winter wheat crop the grades have held in better than anticipated,” he said. “A lot of people expected to see a little bit more kernel damage with the wet weather, maybe some lower falling number issues, some higher DON issues. Those really haven’t manifested to a significant level.

“Probably the only blemish on the crop from a quality standpoint is lower protein which can be significant and potentially beneficial for spring wheat in protein premiums,” he continued. “But they did come up a bit from their early harvest when the average protein level was in the 10.8-10.9 percent range. As the harvest has progressed they’re probably averaging closer to 11.2 percent, which is still a full point below a year ago of 12.3, but improving as harvest has gone on.”

Some potential factors going forward that will drive prices is world dynamics. Dryness in the Russian wheat areas has cut their production a bit and possibly potential exports. Also, Europe has faced a bout of dry weather which has probably taken some of their production down a bit in the northern areas.

“Some of those losses will offset what looks to be a better than expected U.S. winter wheat crop,” he said.

On the demand side, U.S. export sales of all wheat only one month into the new marketing year are at 265 million bushels. That compares to 220 million a year ago, roughly 20 percent ahead.

All of the increases are coming primarily with the winter wheat classes.

“I think that’s reflective of U.S. prices that have set back enough with a pretty good yielding winter wheat crop,” he said. “And with the dryness in Russia and Europe their prices have notched up enough where we’re capturing some demand in North Africa, parts of Central America, in markets that typically are a little more price conscious and will defer to Black Sea wheat.”

Hard red winter export sales are running at twice the level they were a year ago. Soft red winter is running about 40 percent ahead. Hard red spring is about 5 percent behind a year ago.

“I’m anticipating we’ll accelerate a bit as we go forward. Slower sales to Japan and the EU are the primary reason, and with Japan, the lack of a bilateral trade agreement is hampering sales there,” Peterson said. “With the EU there’s talk of potential tariffs on high protein U.S. spring wheat in retaliation for some U.S. tariffs, so that’s slowing new crop sales of spring wheat into the EU. Hopefully those two things get rectified.”

Peterson pointed out that spring wheat cash prices are back to the mid-$4 range as we hit the middle part of July after peaking at about $5 with the May/June rally.

“Unless there’s some kind of production scare that develops mid-summer, here or elsewhere around the world, as long as we continue to get some rain and the winter wheat crop is as good as it is as it progresses north, and there’s no big scare in the Corn Belt, unfortunately the market will probably continue to drive sideways to lower in the short term, on wheat fundamentals at least,” he concluded.