Wheat producers were somewhat happy with the way 2019 came to an end, as the month of December was a good one for spring wheat, according to Erica Olson, marketing specialist for the North Dakota Wheat Commission. Futures prices were up about 50 cents at the end of the month.
“Obviously there was slow producer selling, so the price needed to come up lot encourage producer selling because demand for high quality wheat is still there,” Olson said. “But also there was a lot of optimism regarding the China trade deal and that really pushed markets up.”
She saw the same effect on cash prices which were up 40-50 cents. Current cash bids are about $4.90-$5.25, which is about where prices were a couple weeks ago.
The U.S. and China did work out a partial trade agreement, but we don’t have all the details. The deal is expected to be signed on Jan. 15, as of this writing.
“It was seen as promising for wheat because part of it was China was going to start to fulfill their wheat buying quota and they would roll back tariffs on a lot of the commodities,” she said, adding that China’s wheat buying quota is about 350 million bushels. “However, that doesn’t have to be U.S. wheat, but obviously it offers some pretty good opportunities for U.S. wheat.
That was what the market was excited about.
“It gave us a good price swing, so that was nice,” she added.
To put that in perspective, China’s purchases of U.S. wheat, so far this year, total only 7 million bushels (MB) in sales.
“It’s a big opportunity. However, in the last couple days there has been news out of China that they do not plan to do some of that,” she said. “Now we sit, between that and with the situation in Iran, we’ve seen a lot of market uncertainty and as a result we’ve seen prices fall back a little bit.
“There is a lot of potential with the China situation, but we need to see action. Already the market is starting to lose interest there,” she said.
Looking at the winter wheat situation, Olson noted there’s nothing major going on at this time. The condition rating throughout December was lower than average. In Kansas and Oklahoma, only 40 percent of the crop was rated in good-to-excellent condition. A lot of that is due to areas of dryness, but that region has gotten some rain recently, so there’s not a ton of concern at this time with the U.S. winter wheat crop.
On Jan. 10, USDA was expected to give its planting intentions report for winter wheat. The market is expecting about a million acre decline, which would bring winter wheat acreage to yet another historic low level, according to Olson.
Looking at some of the other major wheat producing areas, the Australian production estimate was already lowered and they’re looking at production about 30 percent below average. And things there have only gotten worse now with massive wild fires going on.
“In terms of exports, both in terms of quantity and price, there’s not a lot of wheat coming out of Australia and they’re not competitive on the export side,” she said.
In Argentina, production looks to be fairly good this year. It was dry there earlier, but that has been alleviated for the most part with recent rains.
“However, one issue there is they’ve elected a new government and they are again raising export taxes on wheat and other commodities, which is making their exports less competitive, and thus, there will likely be fewer exports out of Argentina,” she explained.
Russia is also becoming less price competitive, according to Olson. Export prices there are getting closer to U.S. winter wheat price levels, so they’re becoming less competitive on the export side on the world market.
“What that means is it opens up more opportunities for exports coming out of the U.S.,” he said. “So far, U.S. wheat sales have been fairly strong, but there’s always room for improvement. The current U.S. sales pace is about 6 percent higher than last year at this time at just under 700 MB sold.
“We’re hoping this will keep pace or even pick up a little,” she said, adding that sales over the holidays were fairly slow, which is normal for that time of year. For hard red spring wheat, sales are a bit behind at 194 MB sold vs. 202 MB last year. Sales are down in the Philippines, the largest U.S. market, and where we had record sales last year, so the U.S. is not quite keeping up to that pace. Sales have also been lower to Japan and Thailand, however, sales are up big in Mexico, Taiwan, Vietnam and the African region.
Besides the planting report for the winter wheat crop, USDA will also be providing an updated supply and demand report, and also a stocks report.
“That could potentially be a big day for the market if there’s any surprising news. With winter wheat plantings, the unfortunate thing is if it doesn’t show as low as what they’re expecting, then that’s going to have a negative impact,” she concluded.