January 14, 2013

 

 

The US spring wheat market has found prices sliding down at the end of 2012 heading into 2013, as with other commodities like corn, soy and other classes of wheat.

 

"The uncertainties surrounding the fiscal cliff, investment fund rebalancing and basically non-fundamental, non-market influences have put the market into a tailspin," said Jim Peterson, marketing director for the North Dakota Wheat Commission.

 

"These issues are driving it through some key support levels in the upper US$8 range in Minneapolis spring wheat futures and pushing it down to the next level of support which seems to be US$8.50 for Minneapolis and US$7.50 for Chicago wheat," he said. "So we will see in the front half of January if that level of support is able to hold in the markets. As of now it seems that it wants to set a bottom at these levels, but to strike out and move higher and recover some of the losses may prove to be challenging unless we get adverse weather for the US hard red winter wheat crop or bad weather for South American corn and soy crops."

 

Without that, Peterson feels that for the most part, buyers are pretty relaxed and not overly concerned with supply shortages that have been talked about in the market for months now.

 

Currently the funds can be your friend or foe, according to Peterson, adding that a lot of the fund investment in the market is due to the drought that helped propel the market higher for much of 2012. Now, there's discussion that some of these funds may be looked as having more profit opportunities in the stock market as opposed to the commodity market.

 

The other challenge for significant commodity price recovery, is that more people are anticipating the US dollar strengthening in the short term, and that can be viewed as more negative for commodity values, according to Peterson.

 

Although much of the current market situation is driven by outside factors and not fundamentals, Peterson said there are still a lot of fundamental issues that are positive for prices going forward, but the cash basis will have to appreciate to offset what the futures decline has done. Some of those fundamental issues are cold weather concerns in parts of Russia for next year's wheat crop and quality issues in Argentina and Australia seem to be a little worse than earlier anticipated. Those could potentially be beneficial for US wheat exports.

 

"US wheat is currently the cheapest priced wheat in the world market," Peterson said. "Offers from Russia have finally dried up so we should start picking up more world demand."

 

Another big issue is the condition of the US hard red winter wheat crop. Current local prices for hard red spring wheat range from US$7.50-7.90 with an average of US$7.75. To put that in perspective, local prices had been US$8.75 or even higher in some locations in early November and were US$8.50 in mid-December, so they have dropped about a dollar.

 

"Prices have fallen below producer objectives so I would expect tight producer holding of supplies, especially with the uncertainty of the hard red winter wheat crop down south, and producers hoping to see a little price recovery in January," Peterson said.

 

On the export side, the current export pace has been improving. Overall US wheat exports stand at 686 million bushels compared to 715 million a year ago at this time – down just 4%. Earlier this year exports were as much as 10% behind, so the pace is accelerating somewhat. USDA is still projecting 1.05 billion bushels in sales for its export goal for this year which puts the current pace at 65% of USDA's goal.

 

Looking at the two classes grown in this region, hard red winter wheat sales stand at 259 million bushels, which is only 5% behind last year. But of more concern is it's only at 55% of USDA's export goal for this year, so more demand is needed. Hard red spring wheat sales total 166 million bushels at this time which is trending about 11% behind a year ago. But, on a positive note, that's 71% of USDA's export goal.

 

Hard red spring wheat (HRSW) has seen a pick-up of demand into north Asia over the last short period, although it's down slightly in south Asia. However, some of that is due to buyers waiting out the Australian harvest.

 

In other regions, HRSW sales in the EU are down from a year ago due to an economic slowdown in Spain which is typically a good customer.

 

The market is anticipating the January 11 USDA survey of the 2013 US hard red winter wheat crop. Peterson noted a private survey is already hinting at a 2% increase in plantings up to 42 million acres.