This time of year, with Thanksgiving behind us and Christmas and New Year fast approaching, along with the fact the Great Lakes ports are closed, is typically a slow time for the wheat market. This year is no different.
“The spring wheat market remains in a narrow trading range into the early part of December. There’s not a whole lot of new news in the market,” said Jim Peterson, marketing director for the North Dakota Wheat Commission.
“The Minneapolis March futures, which is where the cash grain is trading off of now, is in that $5.10-$5.20 range,” he added. “It’s bounced off of the support level of $5. On the negative side, we’re still running about 50 cents below our mid-October high for the futures, but as I said, up from the support level of $5.”
Peterson noted that during the month of November, Chicago held a 30-40 cent premium to Minneapolis, which is a rarity. At this time, Chicago is still at a premium to Minneapolis, but it’s down to about a 10-15 cent per bushel premium.
“Chicago is still supported by pretty tight quality for delivery stocks for soft red winter wheat due to the quality issues during harvest, but that has narrowed up a bit,” he said. “Minneapolis is showing more stability in the last couple weeks relative to Chicago.”
Going forward some things that may continue to lend support to the overall market is the fact that Australia’s wheat crop is just starting to be harvested, and it’s still enduring some pretty dry conditions. As the crop finished out, some local estimates have the crop to be the smallest level in 11 years.
Another factor is that Argentina’s crop is also struggling with lower than expected production, as well as some quality issues with harvest weather.
Peterson, speaking on Dec. 9, said the next USDA report was to come out that week, and the expectations are that USDA will lower estimates to both the Australian and Argentine crops, which would be a positive.
“On the world scene we are starting to see some firming of Russian wheat prices, just stronger internal demand from Russia, as well as they have been able to capture some of the recent exports on the world market into parts of Africa and the Middle East,” Peterson said. “So that’s been positive for their prices and it’s getting a little closer to where our prices are.”
Looking forward to 2020, there are some potential positives for the market, including some expanding dryness in the U.S. hard red winter wheat region, especially into parts of Oklahoma and central Kansas. Also, the overall winter wheat condition rating is lower than a year ago.
“We’ll see what kind of winter weather that brings, but obviously, if they stay dry for this next short period and don’t get any snow cover, and get some cold shots, that’s certainly going to add concern to the crop there,” he said. “But a lot of significant market impact probably isn’t going to happen until spring when the crop comes out of dormancy.”
Another potential positive is in Europe where France is only 80 percent planted with its crop due to pretty wet conditions this fall in parts of Europe and that may cut into their planted acres for next year.
On the local level, hard red spring wheat prices continue to be supported by strengthening basis. Cash prices in North Dakota range anywhere from $4.75-$4.98, and even though futures are down about 50 cents from their mid-October level, local basis levels have improved 50 cents or more and that’s helping to keep local cash prices a little more stable.
Looking at the hard red spring wheat index, which is more of a region wide look at prices, the average is $5.02. That is about 50 cents below a year ago when prices were $5.49 a bushel.
“The cash price in mid-October was $5.20, so the picture I’m trying to paint is that we are starting to see a strengthening at the local market level, but we’re still probably below a lot of producer price objectives, where we need to be,” he said.
“One thing that may help out on that is if we look at our export values,” he continued. “We’re running anywhere from 10-40 cents a bushel higher than a year ago for 14 protein spring wheat at the PNW (Pacific Northwest). Local cash prices to producers in the region are still about 50 cents below a year ago, whereas export customers are being offered 10-40 cents a bushel higher. So there’s still a disconnect and I think it’s probably an indication that there may be more strength to come at the local level if producer selling doesn’t pick up.”
Another feature which may continue to help local basis levels, according to Peterson, is the secondary rail freight market, which due to the slow demand right now, is running 10-15 cents a bushel under tariff.
“That is generally split between grain traders and producers. Hopefully more of that comes back to producers’ pockets in the form of higher local prices,” he said. “We’re starting to make some positive improvement, but I think there’s more room to grow.
“Part of the reason why export offers are still higher is the grain trade struggling to match up the quality issues, and also the risk that we haven’t been able to capture a lot of significant export demand for spring wheat,” he continued. “We’re running a little behind a year ago.”
It’s not just the U.S. market that’s running behind. Canada is also a bit behind in export sales. Peterson explained that customers of higher protein wheats, like Canada and the U.S. produce, are dealing with sticker shock with some of the export values, and hopefully, our export grain trade can capture more sales in the near-term to those areas to bring some clarity to the market.
Looking at overall U.S. wheat exports, as of the end of November, sales stood at 606 million bushels which is up 7 percent from a year ago. All of that increase is due to hard red winter wheat and durum exports. Hard red winter sales are now at 224 MB, which is 36 percent ahead of a year ago
Hard red spring wheat sales are at 169 MB, which is 6 percent below a year ago. Looking at sales on books, meaning sales yet to be loaded on ship, for hard red spring wheat those are off 30 percent. Some key markets where the U.S. is challenged in Japan, Philippines, and Korea, three big markets for the U.S.
On a positive note, U.S. sales have been stronger to Italy, Taiwan, Vietnam and especially into Mexico. Mexico has moved up to a top five hard red spring wheat market and their current purchases are three times higher than a year ago.
“That’s certainly been a positive because we expect sales to Japan and other parts of Asia to improve after the first of the year. Hopefully that will come to fruition,” he said.
Looking north to Canada, the U.S.’s big competitor in the international market, Peterson pointed out that Stats Canada came out with updated production estimates in early December, but there wasn’t much change.
“The only caveat is that approximately just 90 percent of the crop was harvested in Canada at the time of the survey, so there’s a lot of uncertainty, but they did keep wheat production numbers essentially the same as their September estimate,” he said. “There was a slight decrease in the all wheat number, but not significant. The more important factor is it’s still a pretty large crop in Canada, especially for spring wheat, which is pegged at 943 million bushels, up 7 percent from a year ago which would be their largest crop in 6 years.
“What it’s going to come down to is certainly no shortage of crop, it’s just a matter of Canadian exporters versus U.S. exporters and finding the sweet spot in terms of quality grades and prices,” he continued. “In Canada, they certainly have some quality shortfalls, but they’ve also been struggling with a damp crop and a crop that’s maybe not in marketing condition quite yet. With the delayed harvest, they are a little bit slow in capturing some sales so their exports are similar to our spring wheat sales which are running behind.”
Through the end of October Canada had shipped out 147 MB compared to 176 MB a year ago. Canadian sales into the U.S. are down 50 percent and they’re also lower into Mexico, but they are doing better with sales to Japan.
“Going forward, the market will be monitoring some of the positive trends developing on the world market, but it’s still facing the reality of pretty tough headwinds with export competition,” he said. “It’s about trying to find the balance of getting export customers to feel comfortable with export offers and trying to find a level that maybe generates more producer selling with the late row crop harvest, in particular corn, left in the field.
“Unfortunately, it probably does tip the hand of producers a little bit, meaning some producers may have to move spring wheat sooner than they’d like for cash flow perspective,” he added. “I still think most producers are comfortable, especially if they have quality spring wheat, holding out for some stronger prices, especially as we head into 2020.”