Hard red spring wheat harvest is underway, but the weather has created sluggish conditions. Sluggish can also be used to describe the market in general.
“In spring wheat we have a sluggish harvest and a sluggish market,” said Jim Peterson, marketing director for the North Dakota Wheat Commission. “The weather in the first half of August has not been very favorable for rapid harvest conditions across the spring wheat region. For one, we’re battling a later maturing crop to begin with. But the other issue has just been persistent wet weather, high humidity, below average temperatures, and in a lot of areas, some heavy rain and hail. Hopefully, the second half of August will be much more conducive for accelerating harvest.”
The sluggish market goes for not just spring wheat, but also for corn, soybeans and the other wheat classes.
“Everything continues to retreat from the early summer highs that were set,” he said. “Now we’re testing or breaking through some of the lows we were at prior to planting season in early May. The market continues to fight uncertainty over the U.S. corn crop – planted acres versus maturity dates versus condition.
“From a world wheat standpoint, we get some positive potential in some markets, but then other countries see their crops actually improving. It’s just been a very frustrating early August for wheat producers, both from a price standpoint and just harvest progress,” he added.
Looking at current cash prices in some western locales, prices are down to nearly breaking through the $4 per bushel level, while in some eastern locales prices are holding in that $4.40-$4.45 range. Peterson noted the average price is $4.15-$4.20, which is down 30 cents from early August and about 20 cents of that is due to a loss in the futures and the remainder in basis levels.
“As far as basis, we’re seeing pressure from moving a lot of old crop spring wheat to town prior to harvest,” Peterson said. “While our export sales are equal to a year ago, we need to see some higher levels of purchases to offset the movement of the old crop inventories and what looks to be a pretty good 2019 crop heading into harvest.”
Looking at current crop progress, as of Aug. 18 the U.S. spring wheat crop was only 16 percent harvested compared to 50 percent, which is typical for this date. All states are running well behind when it comes to harvest. The most significant delays seem to be in the eastern and southern parts of the region. Progress by state has South Dakota at 27 percent harvested, which is well behind the more typical pace of 80 percent. Montana was at 20 percent complete, while North Dakota and Minnesota are close to 10-15 percent. Peterson said it’s probably too early to get an assessment of the crop. Protein seems to be higher than expected in some areas, but then trending lower in other areas with 13-15 percent protein catching a good range for most of the crop.
“One area of concern going forward, at least for the early harvest after the rainy period, is what the impact of rain on the crop will be,” he said. “It certainly wouldn’t be a surprise to see some areas with some lower falling numbers, maybe a little bit of sprout damage, and for sure the color and vitreous kernels have been impacted in some areas. Hopefully that will be minimal as we get further into harvesting the crop.”
As far as the yield estimate, on Aug. 12, USDA came out with a revised production estimate for the U.S. hard red spring wheat crop, pegging yield at a record high 49.2 bushels per acre (BPA), up from 48.3 last year, which was the previous record. North Dakota was estimated at 50 BPA compared to 49 last year. That’s a new record for North Dakota as well. In fact, all states are equal to or higher than their yields of a year ago, but there’s quite a bit of spread across the region. Montana, which has faced drier weather, was estimated at only at 34 BPA, while South Dakota was at 47 BPA, North Dakota at 50 BPA and Minnesota at 62 BPA.
The big question going forward is will the yields that come in the combines match what USDA is projecting, according to Peterson.
“I think there’s a lot of people feeling that if there is a year where yields will come in below USDA’s projections. Then it’s probably this year because of the lateness of the crop, the sporadic but persistent drought through May and June across the northern parts of North Dakota, and just the excess moisture in southern parts of the spring wheat region,” he said.
“Now we’re getting into a sluggish harvest period where you get more of the crop laying down. So we’ll see what happens, but as of right now that’s what the market is going on,” he added.
The total U.S. hard red spring wheat production is estimated at 566 million bushels (MB), which is down from 587 MB last year, but it’s 12 percent ahead of the five-year average and the sixth largest in the last 30 years.
“I point that out to give the psychology of what the market is looking at,” Peterson said. “We had a lot of old crop inventories moved to town prior to harvest, and even though harvest may be disappointing in some areas, it’s still going to be a very large crop. That’s obviously still pressuring the market and we need to find demand to take some of that pressure off.
“One of the headwinds we’ve been facing is this year we have a record world wheat crop. Fortunately we also have record usage and record trade projected as well,” he continued. “But even with that we’re still going to go into June of 2020 with record world wheat stocks. That’s still a headwind we’re facing.
“On a positive front, we are starting to see some hiccups in some countries like Russia, and Canada is not out of the woods yet in terms of getting their crops out of the fields. Drought is still a concern in parts of Australia, so there are some positives building and hopefully they will continue to strengthen,” he added.
Looking at the early season U.S. export pace, that’s a very positive sign. Overall U.S. exports are at 361 MB sold as of mid-August compared to 304 MB a year ago. That puts the pace up more than 20 percent on the year, well ahead of USDA’s projection of 5 percent. Most of the sales that are being made are in the hard red winter wheat class with 139 MB in sales compared to 81 MB a year ago, an increase of 72 percent from a year ago. USDA is projecting a 20 percent increase for the year, so this is a very solid start, he noted.
Hard red spring wheat sales are running slightly ahead of a year ago with 97 MB sold compared to 95 MB last year. USDA is projecting sales to be equal to last year, so sales are right on track.
“But a lot of it, when we look at our price levels at the export point, we’re running a good dollar below a year ago for U.S. hard red spring wheat at the PNW (Pacific Northwest). For hard red winter wheat, we’re running almost $1.80 below a year ago,” Peterson said. “Part of why we’re seeing good hard red winter wheat exports is obviously prices have gotten very competitive on the world wheat market. Part of that is we’re trying to compete with some of the feed demand with a shorter corn crop in the U.S. market.
“I think going forward, obviously demand will be important, as well as the U.S. and Canadian spring wheat harvest, but we can’t forget about the corn crop, and the big reason why is the delayed maturity of the crop,” he said. “If we would happen to catch an earlier than normal frost in early September, that certainly would be a catalyst for stronger prices in all commodities.”
As of mid-August, only 55 percent of the U.S. corn crop was in the dough stage. Typically that’s at 80-85 percent. Most of the concern is in Ohio, Indiana and Illinois, but Minnesota and South Dakota are also well behind, so an early frost would definitely have an impact.
Some positives for spring wheat going forward are potential premiums for quality, Peterson pointed out. The final quality of the U.S. hard red spring wheat crop is still uncertain and hopefully we don’t get any more rain impacts. The U.S. hard red winter wheat harvest is wrapping up with 90 percent complete nationally and 70 percent complete in South Dakota and Montana. The average crop protein seems to be about 11.2 percent, which is one full point below a year ago.
“The crop is good grading and has good test weight, but there is going to be a need from domestic mills for spring wheat for blending. If our spring wheat crop comes in below average protein, I think we’ll start to see some protein premiums come back into the market,” Peterson said.
“Other than that, we’ll need to get the crop out of the field and most producers are hoping for a good run of weather to finish out August and see if the yields match what USDA is saying and see what kind of quality we have.”