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Wheat prices settle into comfortable trading range

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Spring wheat

After weeks of volatility, spring wheat prices have settled down somewhat.

“With spring wheat we have kind of settled into a comfortable trading range of about $5.20 to $5.40 for Minneapolis September futures,” said Erica Olson, marketing specialist for the North Dakota Wheat Commission. “We still have large world wheat supplies, we’re in the middle of winter wheat harvest, and we have good crop condition ratings, so there’s not a lot to move the market right now.”

Local cash prices as of July 22 were ranging from $4.25 to $4.60.

Part of the recent volatility came a few weeks ago when the wheat market got some support from the corn market due to planting delays and unplanted acreage. The timing of the earlier USDA reports didn’t really account for the acreage and production impacts in the corn region, Olson pointed out, adding that USDA will release some updated numbers in August.

“That could cause a market reaction when those actual official numbers come out, but it’s tough to say,” she said. “The market may have already taken that into consideration as well.”

The other thing is producers are right in the middle of hard red winter wheat harvest. Earlier on, Olson noted there was a lot of concern about the wet conditions delaying harvest, but now it’s in full swing. According to the July 22 crop progress report 69 percent of the hard red winter wheat crop had been harvested compared to 79 percent on average.

“We’ve been hearing of good yield reports, but lower protein though, and the other quality factors are unknown at this time,” she said. “Either way, USDA is projecting hard red winter wheat production up 22 percent. But production of the soft red winter wheat crop, which had some weather issues, is projected to be down 10 percent.”

Regarding the hard red spring wheat crop, 92 percent headed out which is close to average. Some of the warmer temperatures in mid-July were pushing crop development ahead.

Most of the crop is rated in good condition with 76 percent rated good-to-excellent.

“We’ve heard from producers in areas where it was dry right away or where it was wet right away, and that did cause some stress to the crop early on,” Olson said. “Now, the big thing to watch is disease pressure. It seems to be a bit variable around the region.”

USDA released its first spring wheat production and yield estimate in July. USDA does have yield down a bushel from last year at 47.2 bushels per acre and, obviously, there will be lower harvested acres this year simply because there were fewer planted acres. USDA is putting spring wheat production at 542 million bushels which would be down 45 million bushels from a year ago.

“When you look at the supply and demand numbers they look pretty bearish,” she said. “USDA did make some adjustments to the final 2018-19 hard red spring wheat numbers. We did end up with higher usage last year so that did lower the ending stocks number, but they’re still fairly high historically speaking.”

Looking at the initial 2019-20 supply and demand estimate, even with the lower production, wheat supplies are forecast 30 million bushels higher with those larger stocks.

“They have domestic use down which, I think, is debatable at this time and will be pretty dependent on the winter wheat crop,” she said.

“USDA also has exports similar to last year at 260 million bushels. But then ending stocks continue to grow to 323 million which would be the largest in 30 years, so that is not price supportive,” she added.

North of the border, the Canadian crop did receive some beneficial rains in July after dry conditions during the first half of the growing season caused concerns.

“The repetitive word is supplies, supplies, supplies,” she said.

On a slightly positive note the latest WASDE report (World Agricultural Supply and Demand Estimate) did lower ending stocks for both the U.S. and the world wheat situation.

“I think there is still some questionable production issues around the world. We’re hearing good yields in Europe, but in Russia it’s kind of mixed,” Olson said. “We’re hearing of good yields, but then also lower than expected yields where they had dry conditions. In Australia they’re not harvesting yet, but we are watching their dry situation.”

On the demand side, the U.S. export pace is actually up 22 percent compared to a year ago. Most of that is due to hard red winter wheat. For spring wheat, export sales total 72 million bushels to date which is just slightly behind the 77 million last year at this time, so very close to what USDA is estimating.

“Other than that the market will mainly be watching these harvests as they progress,” she concluded.

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