The spring wheat market appears to be a little more resilient in mid-March ahead of the USDA Planting Intentions Report, which is due out at the end of the month.
“We’re seeing a little bit of resilience in the spring wheat market, although we obviously need to see a more sustained rally,” said Jim Peterson, marketing director for the North Dakota Wheat Commission,
He added that average wheat prices are in the $4.80-$5.25 range across the spring wheat region with an average of $5.
Looking at where prices were in early February, the National HRS Wheat Index was about $5.38, and as we’ve hit the middle part of March it’s slipped to about $5.20. Local prices are averaging around $5, which is probably up 5-10 cents from recent lows, but still below the early winter levels. Compared to a year ago, prices are 80-85 cents lower for cash prices for 14 protein spring wheat, Peterson explained.
“What has been driving it is a lack of confirmation of demand, not just for U.S. wheat but for other commodities,” he said. “And with China discussions and the further we’ve gone out on those without a resolution, or hint of a resolution, the further we’ve gone into the South American crop and the availability of new crop corn and beans from there to fill demand. That has led to some disappointment in the market.”
He pointed out that generally, the hard red winter wheat areas have had good conditions this winter and so there are no crop concerns there. Internationally, there are no major crop concerns either.
“The easiest thing has been for fund or non-commercial traders to sell the futures market, so we’re definitely heavily short in both Kansas City and Chicago as both have dropped close to $1 since the first of the year,” he said.
“The market has been expecting that at some point there’s going to need to be a correction that those fund traders, once they feel they’ve maximized their profits from the lower trend in the market, are going to need to buy out of those futures and basically do some short covering,” he continued. “They may not necessarily go long back in the market but buying those future positions back would be supportive to prices. We just need some factor to trip that trend.”
What will that issue be?
One certainly could be the recent flooding in parts of Nebraska and Iowa along the Missouri River, according to Peterson. There are a lot of concerns about planting delays in the heart of the Corn Belt in southern Minnesota into Iowa with the saturated soils and snows they’ve had, as well as the eastern part of the spring wheat region in eastern North Dakota and western Minnesota where there’s certain to be some flooding along the Red River and surrounding areas that are looking quite wet going into the spring.
“At some point those delays should begin to spark some market concern but so far that really hasn’t happened on an extended level,” he said.
Then, of course, there are the U.S./China trade talks. Many in the industry were thinking there was going to be a resolution in April but now it looks more like it may not happen until June.
“The administration hints that it’s going to be very positive for agriculture when it happens, but the reality is it hasn’t happened yet and it’s been going on for quite a period so the market needs to see some proof that something concrete is happening,” Peterson said.
Fortunately, spring wheat has held in a trading range while the other markets have sold off quite sharply.
“Spring wheat has slipped as well but seems to be holding in a trading range,” he said. “I think part of that is potential planting delays, but also maybe an attempt to try to hold spring wheat acres. Last year spring wheat acres in the U.S. totaled 13.2 million acres. That was up from 11 million acres in 2017, a full 20 percent increase in planted area.”
Back in late fall, early winter there were expectations that the market could potentially see another 1-1.5 million acre increase in spring wheat. At 1.5 million, that would be another 11 percent increase. However, most analysts have trimmed back the expectations since then just with the late spring and also the drop in wheat prices over the winter months.
“We’ll see what happens. Maybe Minneapolis is holding better just to at least garner some type of increase in spring wheat plantings to offset the decline in winter wheat acres,” he said.
On the demand side spring wheat is doing good, especially relative to a lot of the other classes.
Spring wheat exports as of March 7 were at 235 million bushels in sales which is up 10 percent from a year ago. But somewhat concerning is that the total is only at 86 percent of USDA’s goal for the year. That goal had been revised lower by USDA when the agency came out with its March supply and demand estimate. USDA went from 300 MB in potential exports down to 275 MB in its March report.
“That was basically on account of Canada being a bit more aggressive in some of our traditional spring wheat markets and so USDA just felt we wouldn’t achieve our goal for the year,” he said. “We’ll have to see what happens over the next couple of months. We’ll need to see an accelerated export pace.”
Looking at some of the other classes, white wheat was also trimmed back in terms of export goals. Expectations were that white wheat was going to pick up some customers impacted by the drought in Australia, but that didn’t happen to the degree they thought.
Hard red winter wheat is behind on the year but is actually at 91 percent of USDA’s export goal so that class has been doing better of late.
Peterson noted that Brazilian officials were in Washington DC recently to talk of a new quota for U.S. wheat imports which would be positive if that does develop.
“Unfortunately, it’s still the case that although the world wheat market is tightening, both Russia and the EU, and Canada as well, seem to be doing a bit better in terms of export sales than was anticipated and, of course, that hampers U.S. prices,” he explained.
Two other issues are also having an impact on the market to a degree. One is that rail movement in both the U.S. and Canada is seeing a slowdown in delivery of rail cars to export points or millers or to elevators to load out producer grain. The U.S. situation was hampered even further with some of the record flooding taking place along the Missouri River, according to Peterson.
“There are a lot of rail tracks that do parallel and traverse the river so that definitely is going to be a setback and slow down rail deliveries and we’ll see what impact that has on prices,” he said.
The last issue is the condition of winter wheat crop. The most recent rating for Kansas pegged 49 percent of the crop in good/excellent condition and only 10 percent poor/very poor. At the end of November, 16 percent was rated poor/very poor and 46 percent was good/excellent so there has been a slight improvement in the crop.
“But there’s still a lot of concern with the late start with some of the crop because of delayed planting, causing poor root development going into the winter and some of the periods of cold weather we’ve had,” he said. “The top 2-4 inches of soil temperatures have dropped further than what is typical. If producers have tried to push the winter hardiness on varieties to get yield, some of those may be more a little more vulnerable.”
Peterson noted there will be a more consistent release of weekly crop condition ratings as we get into the month of April. Also of importance is not only the condition of the crop, but what producers do with that wheat.
“There’s a thinking that if wheat prices stay where they are for hard red winter wheat, it’s at a level where it may be more profitable to graze the wheat out for livestock in a lot of those areas rather than take it to harvest or replant to corn, sorghum or soybeans depending on what happens to prices,” Peterson said. “So not only condition of the crop but also the potential level of harvested acres will be watched because that could be a big variable this year if we don’t see a significant rally in wheat prices during the month of April.”