Slow planting progress, trade disputes, and good winter wheat crop conditions have all combined to make the spring wheat market volatile this year.
“With the wheat market we continue to be pretty volatile in terms of market action. Unfortunately more of that volatility has been to the downside,” said Jim Peterson, marketing director for the North Dakota Wheat Commission. “In the middle part of May we are seeing some strength coming in and hoping we can sustain that strength and get some better prices.”
The negative variables contributing to the volatility continue to be worldwide.
“The other negative variable is the trade uncertainties,” Peterson said. “The one that gets a lot of media coverage is China, but for U.S. spring wheat producers there’s also some tariff limitations on spring wheat sales into Japan and some potential tariffs going on EU trade in the fall, so it’s not just the China market for spring wheat producers. There’s a couple other key markets that we need to get some of these tariff issues resolved.”
There are some positive variables in play as well, he noted.
“Prices are very cheap so we are starting to see some bargain hunting come into the market, maybe a little bit of short covering in the futures market. Part of that is because in certain sectors wheat is pricing into feed demand. That’s not a typical demand variable so that’s a positive at these price levels,” Peterson said. “Another positive variable is concern over planting delays primarily for spring wheat and corn.”
Looking at current prices, as of mid-May on the Minneapolis Wheat Spring Wheat Index prices were around $4.80 a bushel nationally. That’s up from $4.65 in late April, but to the frustration of a lot of producers it’s certainly an economic hit. In late March the price was at $5.40 a bushel, so there is a long way to go to recover back to those levels.
In North Dakota and across the region prices range from $4.50-$4.75 with an average of $4.65.
On May 10 USDA came out with its first projection of world wheat production for 2019, as well as U.S. supply and demand, and while it wasn’t expected to be a bullish outlook, it was a bit more bearish than people had anticipated.
Peterson pointed out that world production at this stage is expected to make a notable rebound from a year ago up to 28.5 billion bushels which would be a new record. That’s up from 26.8 billion a year ago.
“Obviously we’re very early in the season and a lot can change, but our primary nemesis in world trade for wheat – the Black Sea region, the EU and Canada – are all expected to see bigger crops, so hopefully we’ll get some adverse weather that will impact production in one of those countries/regions to trim off some of those initial production outlooks,” he said.
On a positive note, use is projected to be up from a year ago to 28 billion bushels. That’s up from 27 billion last year.
“In world trade opportunities they’re expected to be slightly higher at 6.8 billion bushels, so those are some positives,” he said. “If we can just start to ratchet back the production potential in a couple of those key countries that would help.”
In the U.S. supply and demand report, USDA did make some adjustments to the current marketing year which ends May 31. The report was slightly bearish as USDA did lower the U.S. export outlook by 20 million bushels, and also lowered feed use by 20 million bushels and food use by 5 million bushels.
“June 1 is the start of the new marketing year and, unfortunately, what that did was increase our beginning inventories for June 2019,” he said. “Looking at the new year, we’re starting with larger than expected inventories
Peterson explained that in USDA’s initial production outlook it’s essentially the same size crop as a year ago at 1.88 billion bushels for the U.S. where there are lower acres, but the yield prospect is slightly higher so that kept production unchanged.
Looking at demand for next year, USDA is projecting higher feed use of wheat, but at this stage slightly lower exports and so stocks on June 2020 could be slightly higher than June of this year.
“Inventories continue to be a drag on the market,” Peterson said. “In its initial price outlook, the average farm level price prospect for wheat is at $4.70 a bushel. That’s down from $5.20 last year. Obviously a lot of variables will go into that.
One of those variables is the U.S. hard red winter wheat crop which is in good shape. At this time 64 percent of the crop is rated in good-to-excellent condition. That compares to just 36 percent good-to-excellent last year at this time. This year 8 percent is rated poor-to-very poor and that compares to 36 percent poor-to-very poor a year ago.
“So obviously there is a better yield outlook for the hard red winter wheat crop, but some potential positives for spring wheat producers is that there’s starting to be some concerns of conditions being too wet, primarily in the soft red winter wheat region - Ohio, Illinois, Indiana - and also some disease concerns in the hard red winter wheat area and some potential for low protein,” he continued. “If disease concerns take off or once we get into harvest and there’s a lot of low protein wheat, those could be some positives for the spring wheat region.”
The winter wheat crop is slightly behind normal with 42 percent headed as of mid-May. Typically it’s about 55 percent.
In the Northern Plains spring wheat region, there is starting to be some concerns about planting delays. As of May 10, 45 percent of the U.S. spring wheat crop was planted. That compares to 67 percent on average. Only 10 percent of the crop has emerged when typically about a third of the crop has emerged, so it’s obviously behind.
Probably the biggest concern is in South Dakota and parts of Minnesota, according to Peterson. Minnesota is about a third planted, but typically they’re closer to 70 percent planted by this time. In South Dakota producers are 50 percent planted, far behind the average of 90 percent.
“We could lose some intended spring wheat acres just because it’s getting too late in parts of South Dakota and maybe Minnesota,” he said.
In North Dakota planting is behind, but producers made good catch-up progress and about a third of the crop is now planted. Montana is over 50 percent planted.
A variable that will impact all the markets is what happens with corn planting. Nationally the corn crop is about 30 percent planted. Typically about 60-65 percent of the crop is planted by this time. Three key states to watch are Illinois, Indiana and Ohio where only about 5-10 percent of their crop is in the ground and some of the extended forecast calls for more wet weather.
“That could be a support under the market if they continue to face delays,” he said. “Right now, starting inventories, production prospects all look pretty bearish on the market. We need more positive demand to develop.”
As he stated earlier, Peterson said some of the trade uncertainties are probably impacting spring wheat more than other wheat classes because of China and Japan being two key markets and obviously a big sector of U.S. demand. Canada, he added, has been the benefactor of that.
“If we look at overall U.S. spring wheat exports we are 14 percent of a year ago. Canada is 16 percent ahead, so similar overall. But if we look at Japan, Canada has sold 39 million bushels there and that’s equal with a year ago. The U.S. has only sold 33 million bushels to Japan which is about 15 percent less than a year ago,” he explained.
“Looking at China, Canada has more than doubled their sales to China with 51 million bushels of spring wheat versus 24 million a year ago,” he continued. “The U.S. has not been able to trade competitively into China so our sales are close to zero. That compares to 22 million bushels a year ago.”
Overall U.S. wheat exports are at 937 million bushels which is 8 percent ahead of last year. The U.S. is getting some new crop sales on the books. About 90 million bushels have been sold for the next marketing year already, which is a positive.
“Hopefully at these price levels, especially if we get a little weakening in the dollar on exchange rates, I think we’d be competitive,” Peterson said.
A lot will depend on what 2019 production and quality is like. There are starting to be some dryness concerns in Europe and the Black Sea region as well as the Canadian prairies. Those areas aren’t facing significant planting delays and are pretty close to normal on planting, but there’s starting to be some concerns about dryness. Even in parts of the U.S. spring wheat region there are some dryness concerns.
“Hopefully some of the short term weather forecasts call for some good rains across the drier areas during the middle part of May,” he said. “With that we just continue to hope the wheat markets have kind of hit bottom and we can start to work our way higher as summer progresses.”