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The spring wheat markets continue the battle against COVID-19 uncertainties, as do many other markets.
www.omaha.com
Coronavirus creates uncertainties for wheat market
- By MARK COLON, Lee Agri-Media
- Apr 16, 2020
The spring wheat markets continue the battle against COVID-19 uncertainties, as do many other markets.
After a drop in prices in March when much of the country took measures to shelter at home, in early-April the market attempted to rally a bit, according to said Jim Peterson, marketing director for the North Dakota Wheat Commission.
“The wheat market seems to be holding a bit stronger than other commodities,” Peterson said. “But as we’ve hit the middle of the month we’re starting to see more pressure in the wheat market.”
The Minneapolis cash index for spring wheat was at about $5.25 in late-March, and then dipped down to a low of about $5.10 and then rallied back a bit, Peterson noted, but now we’re seeing further losses. He also pointed out that cash prices across North Dakota are essentially all below $5 for 14 protein spring wheat and as low as $4.60 in some western locales to $4.90 in some eastern locations.
As for fundamentals, Peterson noted there are some positives in the market, but not enough to trump the uncertainties that the coronavirus has brought to the market.
“I think a lot of it is tied to how deep of an economic setback will take place, not only in the U.S., but also internationally, and what that does for demand going forward,” he said.
“We have seen some short-term gains in bread and pasta consumption; some stockpiling by a few of the major countries, but not enough to offset the losses we’re seeing in school use, industrial use, restaurants, hotels, etc., and it’s probably just going to take some time to develop more confidence going forward,” he added.
Looking at fundamentals, the U.S. wheat export situation as of early-April showed we had 920 million bushels (MB) sold, which is about 9 percent ahead of a year ago. The current projection is 985 MB, so the U.S. is at about 93 percent of USDA’s goal for the year. The U.S. also has about 47 MB of new crop sales on the books for sales after June 1, which is a positive.
Looking at the two major classes, hard red winter wheat exports stand at 345 MB, which is up 8 percent from a year ago. The goal for the year is 380 MB, so hard red winter sales are at 91 percent of that goal.
Recently, Peterson noted there was a sale of hard red winter wheat to China, which is helpful.
“Hard red winter was kind of a surprise sale to China as they typically buy hard red spring, or in the past, some soft red winter, but hard red winter seems to be the most competitive, and the best fit for China government reserves,” he said. “Hard red spring is usually most preferred by the non-COFCO buyers, and with hard red spring we’re also challenged by ergot specifications.”
Overall, U.S. hard red spring wheat stands at 272 MB in export sales, which is up 9 percent from a year ago. On a more positive note, USDA’s goal for the year is 275 MB, so hard red spring is at 99 percent of that goal. With that said the U.S. has about 55 MB left to ship out, Peterson noted.
“We’re going to need to see some aggressive export loading over the next couple months, so hopefully there are no hiccups with the coronavirus in terms of inspections or ocean movement,” he said.
A big positive story for hard red spring, according to Peterson, is that sales to Japan are running 19 percent ahead of a year ago.
“We’re seeing some of the benefits of the recently signed U.S.-Japan free trade agreement,” he said, adding that the Philippines remain, by far, the dominant buyer and is on pace to set a new record for spring wheat sales at about 66 MB. They account for almost 25 percent of total U.S. spring wheat exports.
“As of now we’ll continue to watch if we see some forward buying by countries over some of the coronavirus concerns or, if it flips the other way due to economic uncertainty, and we see a pull back on buying which, of course, would add more bearishness to current price trends,” Peterson
said.
Peterson called the recent outlook from USDA a bit bearish for overall wheat. On April 9, USDA came out with updated supply and demand numbers and in the report USDA lowered wheat exports by 15 MB due to challenges with hard red winter and soft red winter trying to compete with Russian and European Union (EU) wheat. USDA also lowered feed use by 15 MB, part of that due to the drop in corn prices over the last few months. With that USDA then raised ending stocks by 30 MB.
There was no adjustment to projected food use of wheat in the U.S.
“Maybe that will take until May to see if we see any increase in food use with the self-isolation across the U.S. and more in-home use of bread products,” he said.
On the world level Peterson said the report was a bit bearish. Again, USDA raised ending stocks of wheat in the world primarily due to lower domestic use of wheat in China, India and the EU of a combined of 180 MB due to supply chain bottlenecks and lockdown policies due to the coronavirus.
On a positive note, on the trade side USDA lowered Russian exports due to the self-imposed government export restrictions by Russia on exports through June. On the downside, that was offset by an increase in EU exports of spring wheat so the net effect was a wash.
Going forward, there is some concern of both the Russian and EU crop for 2020 with some pockets of dryness starting to show up. That will need monitoring going forward.
As far as the U.S. 2020 crop, USDA is starting to release more frequent crop progress updates for the winter wheat crop. In general the crop is running ahead of last year in terms of maturity with 35 percent of the crop headed in Texas. In Oklahoma close to 90 percent of the crop has jointed, which is 20 percent ahead of last year, and in Kansas a third of the crop has already jointed, up from 20 percent from last year.
As far as the condition of crop, the best conditions are in Nebraska and South Dakota with 75-80 percent rated in good-to-excellent condition. Further south into western Kansas and Colorado, conditions are a bit drier and 50 percent is rated good-to-excellent. In parts of south Texas there is some drought and some of the crop is being harvested for hay.
Overall, the U.S. winter wheat crop is rated 62 good-to-excellent, which is slightly better than a year ago.
“The concern right now for the winter wheat crop is with some of the unusual and record breaking cold temperatures in mid-April and the earlier maturity pace of the crop, that makes it more prone to these cold snaps,” he said. “So far there hasn’t been any market reaction, but if damage is confirmed in the next week or so, you could see some market reaction out of that.”
The hard red spring wheat crop is just getting rolling in terms of planting, Peterson pointed out. Planting so far is a little behind average with just 2 percent planted in Montana, 6 percent in South Dakota and 0 percent in North Dakota and Minnesota as of April 13. Overall, 5 percent of the U.S. spring wheat crop is planted, which is slightly behind the 9 percent average.
“We’ll see what happens going forward. If we get some late season moisture and continued cold temperatures, we could start to get some market reaction,” he said.
In eastern areas there is some discussion of maybe more spring wheat acres going in and less corn due to the shutdown of some of the ethanol plants due to the collapse of oil prices and the effect that’s had on ethanol and corn.
“Even though hard red spring wheat prices have been retreating as well, corn has fallen more sharply and the outlook a little more bearish,” Peterson said. “We’ll see what happens, but we are hearing some talk of a bit more interest in spring wheat in some of the eastern areas. That’s kind of where we sit. It’s a pretty challenging situation with a lot of added uncertainty.”
Minneapolis futures have traded in that $5-$5.40 range for much of the year, and new crop at $5.20-$5.55.
“We’ll see if those ranges hold as we’re now pressing on the bottom side of those ranges and looking for more confidence in demand and economic signals, or production/planting concerns with the 2020 crop,” he said. “Until then the market is, unfortunately, being driven by coronavirus concerns.”
