Midway through January there were three big events that all had an impact on the wheat market.
On Jan. 11, USDA came out with the first look at 2020 winter wheat plantings in the U.S. The agency also provided an updated supply and demand report, which had updates for wheat, but there was more closely followed data on corn and soybeans this time. The third issue, which is still being sorted through, is phase one of the U.S./China trade agreement, which was signed on Jan. 15.
In the updated USDA reports, the market expected more news on the corn and soybean crops simply because of the number of unharvested acres and the crops left standing in the fields.
“I think the adjustments were a little bit of a disappointment,” said Jim Peterson, marketing director for the North Dakota Wheat Commission.
For U.S. wheat, the only adjustment was USDA raised expected feed use by 10 million bushels (MB) to 150 MB, which would be 70 percent higher than last year and three times higher than 2017, according to Peterson.
The two classes that saw increases were hard red spring wheat and soft red winter wheat. Both were increased by 5 MB. There was no adjustment for wheat production.
“Similar to corn, there was an expectation that they might try to further tweak the hard red spring wheat crop, but there were no adjustments from November, so I still think people feel that the Montana harvested acreage percentage is too high,” he said. “The latest estimate was at 95 percent of the planted acres harvested, which is only 5 percent abandonment, and many feel it’s higher than that in Montana.”
In North Dakota, USDA kept unharvested acres at 10 percent for spring wheat. Minnesota had some wet areas too, and was 3.5 percent unharvested.
“Maybe there was some disappointment there were no adjustments to production for that. This was the final estimate for the year, so that’s what we have to work with,” he said.
The only other minor tweak is USDA kept overall U.S. wheat exports similar to previous months at 975 MB, but they did take away 5 MB from hard red winter wheat and put it in to durum.
“That’s not really a market mover, but at the same time it didn’t provide any overly bearish information, so one could view the report as a positive,” he added.
The other report that came out with the updated supply and demand numbers was the estimate of Dec. 1, 2019, stocks.
“Overall U.S. stocks showed lower, similar to what USDA is projecting for the full year – that we’ll see a decline in U.S. inventories, which is certainly price positive from the last couple years,” he noted.
For North Dakota, Dec. 1 stocks were 268 MB, which is down from 277 MB a year ago. On-farm inventories in North Dakota were reduced 4 MB from the previous year to 184 MB, and off-farm inventories were at 84 MB, down 5 MB from the year before.
“That’s a positive,” he said.
The only offset was Montana inventories were up 9 MB with higher harvested levels and strong yields there as well.
The other new market information was the winter wheat acreage estimate. The survey showed 30.8 million acres planted which is down 400,000 from a year ago. The trade had been expecting to be down about 1 million acres, or closer to 30.5 million, so it came in higher than expected. The Kansas estimate was a surprise with acres holding steady when most had expected a notable cut. The states with a pretty big decline were Montana and South Dakota with a decrease of 20 percent on winter wheat plantings which would stand to reason with the late harvest and wet fall. Illinois was also down 25 percent. The state with the biggest increase was Texas at 10 percent.
For North Dakota, USDA has the state at 75,000 acres, which is down from the past two years.
Looking at export demand, which will be the big driver for the next couple months, there continues to be improvements in U.S. wheat exports, especially for hard red spring, according to Peterson. Overall U.S. wheat export sales as of the first week of January stand at 720 MB, up 9 percent from last year. Hard red winter wheat is at 261 MB, up 27 percent, and hard red spring is at 206 MB, up 2 percent.
“It’s the first time through this marketing year where hard red spring is running ahead of a year ago, so we’re starting to see sales accelerate,” he said. “The 2019 crop is being more clearly defined for buyers and I think buyers have found that if they want to pursue quality they need to pay some higher values. Slower shipments out of Canada are also helping us on hard red spring.”
Relative to the goal for the year, hard red spring is actually doing the best at 79 percent of the goal.
“Maybe in future reports we could see the export projection increase,” he said. “Hard red winter, even though it’s had very strong sales, is only at 68 percent, so they’re going to need to see a pick-up in exports. Overall, the U.S. is at 74 percent, so we’re on target.”
On the world scene, Peterson noted that we’re starting to see some continued positives both in Europe and Russia. Prices have strengthened since December and they continue to show signs of further strengthening.
Regarding the USDA supply and demand update, in January the agency did cut the world wheat crop by 40 MB due to smaller crops in Australia and Russia. On world trade USDA raised it by 50 MB. The U.S. did not pick up any of that, Peterson noted, but the European Union had a strong increase which was offset by the declines in Russia and Australia.
For Canada, their export sales through the end of November were about 20 percent behind a year ago.
“They’ve seen almost a 50 percent decline to the U.S., Mexico and China, and slightly lower into Indonesia,” Peterson said. “But where Canada is seeing gains is in Japan with a 28 percent increase. Part of that might be a push to get ahead of the new U.S./Japan agreement with tariffs equaling out between the U.S. and Canada.
The U.S. has seen an acceleration of its exports, especially into Southeast Asia with sales of hard red spring, and still doing well into Mexico and seeing improvements with Japan.
On the domestic demand front for hard red spring, as expected we are seeing stronger food use, Peterson pointed out. Food use of hard red spring in the U.S. is at 260 MB, which is up 5 MB from a year ago and the highest level since 2014. That’s primarily due to replacement of some of the lower protein hard red winter wheat.
“Even though we saw an increase in feed use for hard red spring in this last report, we could see further adjustments higher,” he said. “As of right now we’re only at 35 million bushels of feed use for hard red spring. Last year we were at 52 million for feed use. And, of course, we have more quality issues this year.”
Prices, which are currently at $5-$5.70 across the region with an average of $5.30, are down slightly from early January for the region.
“North Dakota seems to be holding more stable. We’ve seen futures improve a little, but with that we’ve seen a little bit of erosion of cash basis levels, so it’s kind of an offset,” he said. “We’ll see what happens going into February if we do capture some sales to China or get more certainty as to when they might buy.
“Hard red spring is certainly one of the classes that will be looked at. Most analysts kind of expect a 60-90 day timeline before we may see some purchases come on board,” he concluded.