The U.S. wheat market had been building some strength in September, but that strength has slipped slightly in October.
“We’ve lost some of our strength in the wheat market,” said Jim Peterson, marketing director for the North Dakota Wheat Commission. “It had been building in September, but on the futures market we’re probably back down to the low $5 range for Minneapolis December futures.”
He also noted that Chicago did fall through the $5 level and Kansas City hard red winter wheat saw the worst of the decline and fell back to the $4.70 range in terms of values.
“We reached a trading range where the support levels where we had fallen to in early September appear to be holding for the most part, and hopefully it continues to hold through this current pressure point,” he said. “It has meant a setback in local cash values. Right now we’re back to a range of $4.20 a bushel in western regions to $4.80 in eastern regions with a $4.45 average.”
Nationally spring wheat is at $4.77. The high water mark was $5 in early October. Our recent low was $4.44 back in early September.
“So right now we seem stuck in a bit of a trading range of $.50 to $.70 per bushel,” Peterson said.
He also noted there is not a lot of producer selling at this time. If there is a positive, it’s that there has been some improvement in basis values. At harvest prices were $.70-$1.20 under futures market, and now they’re to under 40 cents at some eastern elevators and down to 70 cents under at some western locations.
“That’s a reflection of demand outpacing producer delivery and local supplies at elevators,” he said. “Somehow the market will have to encourage movement at the front end of the pipeline and current prices do not support that.”
In northeast Montana prices were $4.65-$4.90 with an average of $4.75. Closer to the export market in north central Montana, prices were over $5 which indicates there may be some strengthening in the regional market.
“Hopefully we’ll see more of that in North Dakota,” he said.
The overhanging issue is record world production from this year and still very weak to stagnant U.S. export sales, especially on hard red winter and soft red winter wheats. And recently the markets have been pressured by improving rainfall in the U.S. winter wheat area.
“That’s something that could continue to be a nemesis on prices in deferred futures positions into 2016 because El Nino is strengthening and one area that seems to get more precipitation with an El Nino is the Southern Great Plains,” Peterson said.
On the flip side, some support may be drawn into the market with those higher rain chances in the Southern Plains if it leads to significant harvest delays in row crops. Also, the fact that some parts of the hard red winter wheat region are still quite dry, there’s starting to be concerns about final planted acres as it is too dry to germinate the seed and it may get too late to plant this fall.
Areas impacted include central Oklahoma, northern Kansas and across the Pacific Northwest, including the Washington area, which is dry. Unfortunately, with an El Nino the wheat growing areas in the PNW tend to be warmer and dry.
Globally, in Ukraine and Russia early predictions for 2016 indicate there may be be 1-1.5 million less acres planted due to challenging planting conditions, including too dry in some regions and snowfall in others. That could prove to be a positive for the market.
In Australia, the most recent estimate from USDA raised production by about 40 million bushels from its September estimate. However, some private forecasts have the crop as much as 80 mb below the September USDA estimate.
There are some areas that need rain, while some have very hot temperatures so there are some concerns about final grain fill in Australia. Harvest is expected to start ramping up in November and December.
Looking at the current U.S. export pace, overall exports, if you consider all classes of U.S. wheat, are struggling with cumulative exports at 435 mb, 18 percent behind a year ago and only 51 percent of the latest full year projection by USDA which is 850 mb.
“Historically we want to be at 65-70 percent sold by late fall and early winter and that slow pace has been an ongoing pressure point to prices,” Peterson said. “That’s mostly showing up in hard red winter and soft red winter wheat classes which are running as much as 20-30 percent behind export levels of a year ago. Hard red spring wheat is also challenged, but it’s only 12 percent behind. We have 146 million bushels on the sale books for spring wheat versus 166 mb last year.”
While that’s positive compared to other classes, the current USDA projection for the year is 295 mb, meaning we’re only at 50 percent of that projection.
“So we may see further cuts in the spring wheat projection if we continue to struggle to makes sales,” he said.
To date the top market is the Philippines with 20 mb, which is ahead of a year ago. Japan, at 16 mb, and Taiwan, at 10 mb, are markets that are behind a year ago.
“On a positive note, of the top five markets the two remaining – China with 9 mb and Italy with 8.6 mb – both are ahead of a year ago,” he said.
In its Oct. 9 report, USDA did lower the full year export estimates for hard red spring wheat, going from 300 mb to 295 mb. USDA did not change domestic use numbers. As expected the biggest adjustment was in production where USDA reduced the size of the crop from 576 mb in its August estimate to only 564 mb in October.
Other than adjustments to hard red spring wheat, USDA also changed U.S. wheat and world estimates. The only notable change was it reduced the overall size of the U.S. crop by 84 mb due to less planted acres and a lower yield than they thought mid summer.
USDA did reduce its export projection also, going from 900 mb down to 850 mb.
On world numbers, the only notable changes were in production, due to increases in the Australian and Canadian crops with lower estimates in the U.S.
On the trade side, due to a strong start in the Black Sea region and Europe, USDA raised export forecasts in those regions and lowered its outlook for the U.S. and Argentina.
“We’ll have to wait and see if that bears out going forward,” Peterson said.
“We have a strong quality crop which has high protein, high grades, and good falling numbers. Even though spring wheat has a premium on the market we have much improved quality compared to recent years. That will certainly be a positive factor that will keep buyers interested in the U.S. hard red spring crop,” he concluded.
