June 25, 2012

 

US spring wheat prices unstable in early June

 

 

As the month of June began, spring wheat prices showed a lot of variability as they fluctuated up and down.

 

"Prices have been up and down the last couple weeks as we got into early June, with a small uptrend toward mid-June," said Jim Peterson, marketing director for the North Dakota Wheat Commission. "The trading range for Minneapolis spring wheat on the futures market has been US$7.40 to US$7.80. In the last two to three months, the price has gotten up to US$8 and fallen back to US$7.40, but it's been a pretty stable channel.

 

"In early June, Minneapolis spring wheat was US$7.65, and if we look at Kansas City hard red winter wheat, that had been in the US$6.50 to US$7 range and was trading more up into the US$6.84 range," he continued.

"Similarly, if we look at corn on the futures market, it's been US$5.50-6, but lately was pushing more into US$5.95 range in early June."

 

There have been two primary factors influencing prices in early June, according to Peterson. One is the financial situation in the EU and outside market forces which have influenced the direction of the US dollar or the level of sell-off on the US stock market.

 

"That's been a big driver in the markets," he said. The second major factor is the current weather patterns or 6-10 day outlooks.

 

"It's just natural that weather will be a big variable this time of year when crops are planted," he said. "They're at an important growth stage, though not critical, but one that any extended dry period or overly wet period could have an impact on yields."

 

Producers looking for a pop in prices may see one as there is starting to be mounting concerns in China, Russia and other regions with extended dryness, he continued. Also Australia is very dry and producers there are planting rapeseed and winter wheat and hoping to catch some rains. In the US there is also a concern of a lack of rainfall trend over the southern Corn Belt and more of a spotty rain pattern north and west of that dry area.

 

"So when projections come out for hot and dry for 6-10 days it puts a rally in the market," Peterson said. "On other days when EU concerns are up front we see a sell-off. That will likely continue to be a pattern into mid-August."

 

Looking at the status of the various crops, Peterson said the US hard red spring wheat crop is already 3% headed, which is well ahead of normal. Less than 5% is headed in North Dakota and Montana, but 20% is headed in South Dakota. About 78% of the HRSW crop is rated in good/excellent condition with best crop conditions in North Dakota - 85% - while Montana has 67% in good/excellent condition.

 

Peterson said harvest pressure has been a big price variable for hard red winter wheat. As of June 3, 20% of the crop had been harvested compared to 7% last year and 3% on average.

 

"A lot of market analysts say that once you reach half way on harvest that's when you see harvest pressure on prices ease up," Peterson said. "We'll see if that stems the slide of prices which have fallen from highs we saw earlier. We've seen some recent rallies but haven't gotten back to the prices we saw earlier this spring."

 

Most early yield reports continue to be above average though probably not the record-type yields some areas were expecting earlier, but still strong, he added. With 16% of the HRWW crop tested, US Wheat Associates reports the average protein is 11.8% - about a half point less than last year. But the crop has very high test weight, low moisture and appears to be a pretty good milling crop, according to Peterson.

 

"Based on how the North Dakota winter wheat crop looks, we'll likely see lower proteins than last year, but potentially stronger yields," he said. "A potential impact on yields could be the frost in late May during flowering depending on a particular field's maturity level."

 

On a national level, the average price for hard red spring wheat at this time is US$7.38. That compares to US$7.92 back on May 20 - a loss of about US$0.65. The national average for HRWW is US$6.06, which back in mid-May was US$6.70. Corn was US$6.46 in mid-May but is now trading at US$6.02.

 

"So despite some price building positive issues with weather, we've still got a ways to go to recover the losses from mid-May," Peterson said. "Even though supplies issues have taken centre stage, exports and overall US wheat demand bear watching.

 

"Looking at the close relationship between cash corn and cash winter wheat you can see that there is a lot of close competition for feed demand between wheat and corn. That will be important to watch in the near term."

 

Peterson said USDA is anticipating stronger exports for this new market year because, one, the US is more price competitive this year compared to this time a year ago; two, there are crop problems in the Black Sea region and parts of the EU which are export competitors; and three, there is dryness in China which bodes well for stronger sales to that country.

 

In the market year that just ended May 31, the US finished right on target with USDA's projection of 1.025 billion bushels for all wheat. HRWW exports fell short of its projection, but HRSW was projected at 240 million bushels and finished at 249 million bushels, so it was a bit better.

 

"The 2012 estimate won't be available until July, but as of now new crop sales of HRWW are at 67 million bushels, which is off about 30% from last year, but still better than a lot of people were thinking four to five months ago.

 

"Hard red spring wheat already has 50 million bushels in sales which is the second strongest new crop sales pace since 2004," he said. "But that's still about 25% lower than last year. If the world problems continue to mount, one would expect new crop sales to improve."