Spring wheat

Harvest issues, including frequent rain, slow progress and reduced quality in some areas, continued to be at the forefront for the wheat market during the latter half of September.

Those issues, however, were responsible for a notable run-up in values for higher quality spring wheat, according to Jim Peterson, marketing director for the North Dakota Wheat Commission.

“As we hit October, we did see some sell-off and some setback on that momentum, but there’s a lot of evidence on quality damage that has already been done to both the U.S. and Canadian spring wheat crop,” Peterson said. “There’s still a lot of concern about what will be the final harvested bushels in both countries as well as quality.”

Peterson noted that according to crop progress reports, which are subjective, as of early October, approximately two-thirds of the Canadian spring wheat crop in Saskatchewan was left to be harvested. In North Dakota, about 10 percent of the spring wheat crop was left to be harvested and in Montana 15 percent.

“A lot of elevators and producers feel those numbers are too low, that there’s even a higher share of the crop than what the reports are showing that remains to be harvested,” he said. “What that has led to is that local producer prices have seen a 75-80 cent per bushel increase. The price of wheat is going to vary by region, but prices have benefited from gains in futures, as well as some improvement in basis. We’ll see what happens through the month of October.”

But as he stated earlier, there has been a little bit of sell-off on that momentum. Nationally, that puts the average value for 14 protein spring wheat at $5 a bushel, which is the highest level since mid-June.

In North Dakota, the average cash prices were $4.30-$4.75 as of Oct. 1, which is a little below the regional average.

“I think that’s due in part to the increase in rail tariffs for wheat this year, and uncertainty over what quality is available to load trains,” he said. “But, nonetheless, it’s been a pretty good rally. A sign of further strengthening, more likely in the basis values as the market tries to seek out higher quality wheat, is that at the export end, if we look at the latter part of August versus early October, export offers for 14 protein spring wheat have gone up anywhere from $1.10 to $1.50 a bushel with some reaching as high as $7.50 a bushel, which is certainly more than what we’re seeing at the local level,” he said.

Part of that is due to uncertainty from the grain exporter standpoint on what quality specifications they’re able to deliver on.

“It’s certainly a significant share of risk that they take on relative to producers. There’s some built up premium in those offers and it probably has slowed some of our export sales to some degree as international customers sort out what value they’re willing to pay to maintain traditional specifications for falling number, for vitreous, basically factors that are deficient in the 2019 harvest in a good portion of the crop,” he said. “We’ll see what happens going forward, but hopefully as exporters make sales we will see more basis improvement at the local level.”

Peterson noted that producer selling has been slow for the highest quality, and a greater share of movement seems to be some of the off-quality wheat, and unfortunately, values for that have declined. He added that many elevators have gone to kind of a one-price bid for what he calls “off-grade wheat,” whether it has extremely low falling numbers or high DON level, or very low DHV levels. Those values are anywhere from $2.50 to maybe the low $3 range and moving into feed channels.

Canadian producers and marketers are also facing those same issues. Some reports speculate that up to 50 percent of the Canadian spring wheat crop in areas will have to be marketed into feed channels. Therefore the supply of high quality traditional milling spring wheat has gotten tighter over the last 3-4 weeks.

USDA recently came out with an updated production estimate for the 2019 U.S. hard red spring wheat crop and reduced the yield estimate to 48.3 bushels per acre (BPA). Of note, its estimate in August USDA had U.S. production at a record yield for hard red spring wheat at 49.2 BPA.

“The 48.3 would tie the record set in 2018 so it’s still a very strong yielding crop,” he said. “Producer reports certainly verify that, especially in more western areas.”

The most recent yield estimates by state range from a low of 37 BPA in Montana to 57 in Minnesota. North Dakota was at 49.

Interestingly, compared to the August estimate USDA lowered the Minnesota yield by 5 BPA and raised Montana’s by 3. That’s parallel to what’s coming out in the harvest reports.

“Producers in the eastern part of the region probably did not see as strong a yield as a year ago, whereas out west yields have been higher,” Peterson said. “Unfortunately, we weren’t able to get enough of it harvested before the record setting September rains set in, or the wet growing season increased disease pressures.”

Another adjustment USDA made which is somewhat interesting is that June was their last acreage survey and there was speculation that North Dakota and Montana spring wheat planted acres estimates were too low and South Dakota may have been too high due to the wet spring in South Dakota. The updated acreage report did reconcile that to some degree and USDA lowered South Dakota plantings and raised both North Dakota and Montana. The net effect is planted acreage went up by 200,000 nationally.

“In terms of overall impact on the market it maybe was construed a little bearish that the spring wheat crop was maybe a little bigger than people were anticipating,” Peterson said. “But USDA has said they will resurvey spring wheat producers across the region due to the extremely late and slow harvest. This will not be the final say in production, and odds favor a lower estimate due to higher unharvested acres and loss in bushels for wheat still in the field.”

Production has taken a back seat to quality, he pointed out, and that will be the big issue through much of the winter – What values will be placed on various qualities?

On the demand side, the current export sales pace indicates that overall U.S. wheat exports are at 463 million bushels (MB) vs 400 MB a year ago, up about 16 percent which has been a positive. Much of those sales have been hard red winter wheat with sales of 173 MB vs. 115 MB last year, up 50 percent. Hard red spring wheat sales stand at 126 MB compared to 122 MB, just 3 percent ahead of a year ago.

“I chalk part of that up to sticker shock with some of the export values going up over $1 a bushel or more since the early part of September,” Peterson said. “Some customers still like a very high vitreous kernel count in their specification. I think any producer and elevator will tell you that is certainly a factor that is going to be short in the 2019 harvest.

“Even if it’s high quality wheat with good protein, good test weight, no sprout damage, the amount of rain and wet weather we’ve had means it’s going to be hard to hold hard count so that’s one specification customers will have to pay a premium for. The other is high falling number,” he continued. “Obviously a lot of customers like 300 seconds or higher, but a larger than normal share of the region is struggling to meet 300 seconds. There is good wheat in the bins, but cash values and basis are not strong enough to pull that out currently.”

He added there are also some pockets where DON levels are fairly prevalent across the region. Hard red winter wheat has had more time since harvest and maybe a bit more confidence in the grade quality of that crop.

Exporters have been a little more confident in providing offers at traditional specifications, other than protein, he pointed out. Markets where the U.S. has seen hard red spring wheat sales lagging behind a little they are some of the U.S.’s bigger customers including Japan, Philippines, Thailand, the United Kingdom. That’s being offset by stronger sales to Mexico, Guatemala, and Italy, currently.

“Overall we still have a lot of good quality wheat that has been harvested along with large stocks of 2018 carryover,” he said. “It’s just going to take some time for the market to sort through the 2019 quality profile after what has been a sluggish and very frustrating harvest for a lot of spring wheat producers.”

Those are driving local issues. Looking at the world scene, some positives for a potential price gain are that it’s becoming dry in Argentina and it’s already quite dry in Australia. Those are the two big countries with remaining harvest for 2019, and that’s tightened up the world picture.

Also, going into 2020 there are some concerns about expanding dryness in Russia as they’re planting their winter wheat crop. In the U.S., there really is no issue in terms of planting conditions for hard red winter wheat. It’s dry in some areas and overly wet in others, but it’s not hindering broad progress. National planting progress is at 40 percent complete which is right at the long-term average. In Kansas, one third of the winter wheat crop is planted. Where the concern might come is in Montana, another big winter wheat producer, due to the overly wet September and delayed spring wheat harvest. Planting in Montana is only 40 percent complete, well behind the average of 60 percent.

“Harvest delays and quality concerns are still the big issues for the spring wheat region and we’ll hope for a better October than we had in September for getting the remainder of the crop out of the field,” Peterson concluded.

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