Following some positive price trends in December and early-January for wheat, things took a turn the other direction as January came to a close. And then news of the coronavirus added to the market concern.
“As we hit the end of January, if disappointing market trends or dynamics weren’t enough, the very bearish sentiment that the coronavirus has imparted in the market is certainly another unwelcome trend,” said Jim Peterson, marketing director for the North Dakota Wheat Commission. “Hopefully we’ll see some stabilization as February progresses, but there’s no question it has rattled the market and taken some of the bloom off what had been some pretty positive trends since November-December in the wheat market.”
Peterson noted that the national hard red spring wheat index is down to about $5.10 per bushel. In early-January it had been up to the mid-$5-$5.40 range, so it’s down 30-35 cents a bushel from the highs. Comparing it to a year ago, that’s about where local prices are trending too, about 30 cents below prices from a year ago. Prices at the local level are around $4.70-$5.10, which will likely catch most bids across the region for 14 protein spring wheat, with an average of $4.85.
“If there is any positive with a declining trend this time of year it’s that it probably gives us a notch more export competitiveness in the world market,” he said. “That’s something that had kind of slipped away in early January.”
He pointed out that sales on the books have been starting to scale back a bit. The U.S. is still making good export shipments, although it depends on the region of the world.
“I think the combined pressure of Argentina, Russia and the European Union, our competitiveness with them and those markets has probably slipped some in January with our rising prices, so we should get back in line a bit more to capture additional sales,” Peterson said.
Looking at the current export trend, it has been a very good trend since October, he added. Overall, U.S. wheat export sales are at 768 million bushels (MB) as of Jan. 23, which is up 17 percent from a year ago. Sales on the books are running about 5 percent behind a year ago, but overall shipments are up 26 percent. Big markets for U.S. wheat include Mexico, Nigeria, Japan and the Philippines.
Some of the markets where sales have slipped some this year include the United Kingdom, Iraq, Algeria and Egypt as well as a few South American markets. Overall, other than Africa and the Middle East region, the U.S. continues to do pretty well, according to Peterson.
Hard red winter wheat is the leading class with 283 MB in export sales. That’s up 37 percent from a year ago. Hard red spring wheat has 220 MB in export sales, which is up 10 percent from a year ago. For hard red spring, both shipments and sales on the books are running ahead last year at this time and Peterson expects we should be seeing good loadings for the next few months. Obviously we need to make more sales before the end of the marketing year, however.
“USDA is projecting overall spring wheat export sales to reach 260 MB. We’ve got 40 MB to make over the next few months which I think is very attainable,” he said. “USDA may have to raise the export goal for the year depending how we fare in February and March.”
Looking at Pacific Northwest (PNW) export bids, Peterson noted they’re a full 50 cents a bushel down from the November highs.
“Local producer prices are down 30 cents a bushel from their highs, so that’s indicating that the spread between producer prices and export levels has narrowed, which is a positive,” he said. “Less is going to the railroads and grain handlers in terms of the in-between. Now we just need to see overall prices increase so we can bring more strength back into our local prices.”
Going forward for hard red spring wheat, the big competitor is Canada. Surprisingly their export shipments to date are running 22 percent behind a year ago. Their August through December time frame saw 240 MB shipped. USDA is projecting they would be unchanged from a year ago.
“I guess one can view that one of two ways: one being that USDA is overly optimistic in how Canada will succeed on the export market this year for bread wheat; or on the flipside, Canada will look to get much more aggressive in capturing export sales in the next few months,” Peterson said. “If the latter is true, that means probably a bit more restraint on our potential prices with increased Canadian competition.”
Markets where Canada is doing well include Bangladesh, Indonesia, Japan and Costa Rica. And due to the Australian drought Canada has also seen an increase in Australian mill demand for Canadian spring wheat.
Canada has also seen big declines in shipments to China, which is down 73 percent, as well as the U.S. – down 40 percent, and the United Kingdom – down 15 percent.
“Going forward, with the pull-back in producer level prices, we’ve seen less producer selling, but at the same time we really haven’t seen basis improve much with the futures setback and slow producer selling,” he said. “We’ll see what happens during February. This month is when the crop insurance reference prices are set for spring wheat which is the average of the September Minneapolis futures during the month of February. And if the industry is concerned about spring wheat acres this spring, that’s obviously one variable that can influence that.”
Peterson noted there are other big things to watch on the world wheat market, outside of the stabilization of the coronavirus. One is that Russian government officials recently came out with some pretty lofty 2020 production outlooks, some already calling for a 4 percent larger crop even though harvest won’t take place until June or July.
“That’s despite overly dry soil conditions across portions of their crop, so we’ll see if the optimistic forecast holds,” Peterson said. “I still think it’s too early to be that optimistic on the Russian crop.
“Also another big one, which is a rarity, is that India could likely be an exporter on the world market next year,” he continued. “Favorable weather there has put estimates of their crop size up 10 percent already for next year.
“So, obviously it’s a bit frustrating to see the slide we’ve seen at the end of January, but there’s a lot of positives in terms of export demand. Hopefully that will win out going forward and the market gains some stability over the coronavirus concerns,” he concluded.