As the end of November rolled around, the spring wheat market continued to linger in the winter doldrums.
“The market is starting to see some signs of bottoming, but ironically, the wheat market is being led by Chicago rather than Minneapolis,” said Jim Peterson, marketing director for the North Dakota Wheat Commission. “That’s due to the fact deliverable stocks are pretty tight in Chicago because of significant quality issues with soft red winter wheat. Also, there are more positives in terms of the world situation, and more fund or non-commercial traders in Chicago tend to get that rallying a bit more.”
As December approached, Peterson noted there are some pretty hefty deliverable stocks in Duluth, Minn. He added there is no falling number specification on deliveries against the Minneapolis futures, so there may be a little bit of pressure there.
On the demand side of that equation, the winter wheat classes have had stronger early season demand than spring wheat.
“We’ll see if that turns around,” he said, adding that as of Nov. 25, Chicago futures were about 30 cents per bushel higher than Minneapolis.
“Traditionally, Minneapolis probably averages 50-70 cents per bushel premium to Chicago, so the spreads are certainly out of line,” he said. “That would indicate that, one, if Chicago keeps going up, it would still have to pull Minneapolis along with it. Also, at some point the spreads are going to try and work back in line and that will hopefully lead to more strength in Minneapolis.”
Looking at current price levels to the producer, the national average as of mid-November was $4.90 a bushel. The range of North Dakota bids was in the $4.50-$4.90 range, so on the lower end of that national average. In Montana, bids were anywhere from $4.70 up to as high as $5.30, indicating a little bit more strength there.
In mid-October, the national average was $5.20, so prices slipped about 30 cents per bushel. All of that, Peterson noted, was in the futures market.
“Futures have actually declined 60 cents per bushel, but we have been able to gain back some basis improvement,” he said. “Commenting on the basis, we’re still not seeing the full reflection of what’s happening at the export points with export bids.”
For example, looking at year to year comparisons, local North Dakota prices are about 50 cents per bushel lower than a year ago, while at the Pacific Northwest export point, prices are about 50 cents per bushel higher.
“So we’ve seen a pretty dramatic run-up in export prices since harvest and that extra $1 a bushel difference between what’s happened at the local level versus what’s happening at the export point is being split between the railroads and the commercial grain trade,” he said. “Hopefully we see more of that work its way back to local producer bids, once the trade is able to secure more export sales.”
Peterson feels that in some areas producer movement has been stronger than some anticipated. Part of that is disappointment with some of the fall harvest combined with a pretty slow corn harvest pace. Some producers may have cash flow needs and may have had to move some wheat sooner than anticipated due to the slow row crop harvest.
“We’ll see what happens over the winter. Quality is still a big issue,” he said.
Looking at Canada, as of Nov. 18, there was still about a half-million acres of spring wheat in Saskatchewan left to be harvested which equates to about 25 million bushels. The grade distribution for spring wheat in Canada was about the lowest in 10 years. Only about 48 percent made the number 1 and number 2 grade, Peterson noted. Typically closer to three-quarters of the Canadian crop makes it to that level.
Bids in Canada are a bit stronger than the U.S., but not significantly. Both the U.S. and Canada are struggling to pick up some international demand for higher protein wheat, Peterson pointed out.
“Part of it is, I think, sticker shock by customers with the strong run-up in prices, and also, with exporters and uncertainty in terms of what quality specs they can deliver,” he added.
From August through September, Canadian exports of old crop spring wheat are running about 22 percent behind in shipments.
Looking at U.S. export trends, overall U.S. wheat exports stand at 573 million bushels as of mid-November. That’s up 8 percent from a year ago. USDA is projecting a goal of 590 million by the end of May.
“We’re about 1.5 percent year-to-year gain, so we’re running a bit ahead of projections,” he said. “All of that is due to hard red winter wheat, durum and to some degree soft red winter wheat.”
Hard red winter exports stand at 213 MB, which is up 38 percent from last year. USDA is projecting those would be about 15 percent higher, so they are well ahead of projections.
Hard red spring wheat sales stand at 158 MB, which is 9 percent behind a year ago. USDA’s projection was for a decrease of 2 percent, so that class is struggling to pick up some demand.
“That’s due to a combination of some quality issues in the crop this year, especially as producers seem reluctant to move the higher quality wheat,” he said. “Hopefully we’ll see that pick up as the year progresses with stronger local prices.”
Sales on the books are down about 34 percent from a year ago, and that’s something that’s going to need monitoring going forward over the next two months.
On a positive front, sales to Mexico are running about three times stronger than a year ago, and sales to Vietnam are up 50 percent. Taiwan and Korea are steady, but our two big markets – Japan and the Philippines – are both down 15-20 percent from a year ago.
“Hopefully we can turn that around,” Peterson said.
Going forward, Peterson noted the basis is probably going to have to do more of the work to encourage producer selling.
He also pointed out there are some other positives on the global front with some wet weather moving into the Australian harvest. Australia has battled drought this year so production there was already down, but if they have some quality issues that will add to the potential of the U.S. to develop sales to South Asia.
Parts of the U.S. hard red winter wheat region are getting dry, as well as parts of the Russian winter wheat crop, so those certainly bear watching over the next couple months as the crop is entering dormancy.
“Hopefully we can work our way out of this little slide in prices we’ve seen since the middle part of October,” he concluded.