It hasn’t been a great year for many commodities this summer as many crops struggled to get planted and then fought against uncooperative weather. There has been good demand at times, but unfortunately, as we rolled into September, the wheat markets continued to press lower.
That wasn’t the case just for wheat, but for all commodities, according to Jim Peterson, marketing director for the North Dakota Wheat Commission.
“Basically, large nearby supplies are pressing against growing export demand for wheat, but not enough to offset the supply push,” Peterson said. “The U.S. is in a pretty tight battle with other wheat exporters for world demand and while we’ve been successful on the front end, unfortunately as world prices continue to work lower and the U.S. dollar continues to strengthen, it just adds pressure to our prices to stay competitive.”
The other factor that has taken a little support out of the market is the extended weather forecast for the Corn Belt, he noted. Although they don’t call for above normal temperatures to help accelerate the crop, there’s really no looming forecast for an early frost which would really diminish the corn crop.
“As long as that’s the forecast, it’s taken a little bit of the uncertainty out of the market, which had been supportive, even for wheat,” he said.
Looking at local cash prices for 14 percent protein spring wheat, $3.65 catches most bids in the western region, while prices in the east are around $4.20.
“These are some of the lowest prices we’ve seen since the fall of 2016,” he said. “We’re kind of reaching loan levels for wheat or potential payments of LDP (Loan Deficiency Payment). It has been a fair number of years since we’ve had those payments, so it just reflects the very difficult price situation right now as we go into the latter half of harvest.”
As of Aug. 25, the U.S. spring wheat harvest was at 38 percent complete. That’s well behind the five-year average of 65 percent. The report over Labor Day was delayed by a day, but most expectations are that harvest is over the half-way point as of Sept. 2. Still, the bottom line is that harvest is about 10-days to two weeks behind normal.
Also, there are starting to be some quality concerns among producers and also concerns about when there will be a good stretch of weather to help harvest the crop. As we get further into September, typically the days are shorter and cooler, and this year has expanded on that with cool, cloudy days and some moderate-to-heavy rains, which have not been conducive for a rapid or good quality wheat harvest, Peterson pointed out.
In the eastern part of the region, producers are seeing some lower falling numbers on the crop. As it continues to get hit by repeated rain, there are concerns about those issues spreading to other areas and the crop can also lose test weight and some color.
“Those are all factors when you’re facing a low price environment that compounds issues and I would anticipate that once the harvest pressure eases, producers may sit on the crop,” Peterson said.
Looking at the initial harvest survey data that has come out, based on 16 percent of the anticipated samples, the crop is still holding at 370 for crop average falling number, which is “pretty good.” Protein was in the mid-14 percent range, which is higher than people expected with some of the yields being reported.
“I think protein will become a more important factor as we get into the latter half of the harvest,” he said. “We’re starting to hear some reports of lower protein in the northwest part of North Dakota, and Montana may also have some of the same issues. We’re starting to have some protein spreads come into the market up there, discounts of 15-20 cents per bushel per point of protein.”
In the central and eastern part of the region, he noted there are still no discounts or premiums for protein. The market will watch how that pans out as more harvest is completed.
“One of the things we’re anticipating is stronger U.S. domestic mill demand for spring wheat. That’s predicated on the lower protein hard red winter wheat crop,” he said. “So far, nationally, we’ve seen the protein premiums come just within the hard red winter wheat class where, at some locations, they’re up to almost 30-40 cents a point. Whereas hard red spring wheat in those same locales is only a 5-8 cent per bushel premium.
“So if the latter half of the spring wheat harvest produces lower protein, we’ll likely see more of a protein scale come into the spring wheat market,” he continued. “Of course, with that we’ll have to have sound, high-grading wheat, and I guess that’s an unknown right now.”
He said there is certainly a good chunk of pretty good quality wheat, but there are pockets of weathered crop and the current weather forecast needs to turn around to help producers get the rest of the crop off the fields in good shape.
There are other factors in the market that are positive. One is that the U.S. export sales through the end of August – basically the first three months of the current marketing year – stand at 400 million bushels of wheat exports on the books. That’s up 23 percent from a year ago, so with USDA projecting only a 5 percent increase, U.S. export sales have certainly started the year stronger than expected.
Hard red winter wheat continues to be the class that’s had the most favor in the export market, according to Peterson. Those exports are at 156 million bushels, which is up 64 percent from a year ago. Hard red spring wheat exports are at 112 million bushels, up 12 percent.
“But probably more importantly, if we look at hard red spring wheat sales on the books, basically sales yet to ship in the September-November period, those are running 47 percent ahead of a year ago,” he said.
“Obviously the price environment is not very appealing to producers and certainly not profitable,” he continued. “This is encouraging some extended buying by export customers, however, and as those sales need to be lifted for loading on the boat it should translate into some support for local cash prices.”
Another positive in the market is domestic mill demand. The latest USDA forecast is for 265 MB of spring wheat and that’s right at the record level of 266-267 MB in 2013-14 that were used domestically. That’s up close to 5 percent from the last couple years.
“Hopefully, the tail end of our harvest is decent quality and the falling number issue that is showing up in parts of the crop is not as widespread as some anticipate and that we can compete pretty aggressively for that projected higher domestic demand,” Peterson said.
The other potential positive to hopefully turn prices around is the Canadian crop. Stats Canada recently came out with its August production estimate and pegged their spring wheat crop at 923 million bushels, up from 880 MB last year. Canada had higher planted acres which helped offset slightly lower yields which were forecast at 50 bushels per acre, which is down from the 51.4 BPA last year which was their record yield level.
“I think the big thing is quality and final production is far from certain in Canada,” he said. “Portions of the Alberta crop may struggle to reach maturity. Also, their harvest is running behind due to delayed maturity, but also rain and cooler temperatures similar to what we’re struggling with.”
As of the end of August, only 6 percent of the Canadian crop was harvested. Typically they have 16 percent of the crop out of the field by that time and the last two crop years they had 25 percent complete.
“The odds are a little bit stacked against them in getting the crop off without some quality issues. And if they would hit an early frost, more of that crop would suffer some lower yield and relegated to feed channels,” he said. “We’ll see how that plays out.”
In the short run, there is certainly no shortage of headwinds facing the market, Peterson noted.
“Some analysts still feel the markets can work lower until the harvest is closer to being finished in the spring wheat region or unless there’s some type of weather scare in the Corn Belt just because we are looking at a record world crop and record yielding spring wheat crop this year,” he said. “The second half of the export year for the U.S. may be more challenging. We’re seeing weaker markets in Europe, as well as the Ukraine, as they compete for business with some of their crop.”
Lastly, the Argentine crop looks to be quite good, so they’re going to become a greater competitor in Central America where hard red winter wheat exports have been good.
“Hopefully those are less of a factor and we can continue to build on our good start to exports and the anticipated slowdown of producer sales as harvest wraps up will help tighten the market a little bit and see if we can work prices higher from some very challenging levels currently,” he concluded.