As the war in Ukraine continued and a large part of the northern plains bracing for an early spring snowstorm, the wheat market was finding some support and prices were rising.
“With the wheat market expected to continue in mid-April,” said Jim Peterson, market director for the North Dakota Wheat Commission, noting that July futures in Minneapolis were trading around $ 11.40, while Kansas City was at $ 11.45 and Chicago at $ 11.05.
“We see Kansas City moving back to a premium over Minneapolis. That ‘s just a reflection of how dry and droughty things are getting in that part of the country, “he explained.
Peterson also noted that since the Russian invasion of Ukraine, Minneapolis has ran from $ 10.30 as a low all the way up to $ 11.76, which is approaching the early highs that were set at the onset of the invasion, for Minneapolis at least. Kansas City and Chicago, he added, have a ways to go as they peaked out at $ 12.50 and $ 12.80, respectively.
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“Nonetheless, if you still have some wheat to sell or new crop pricing, it certainly looks good to the uptrend,” he said.
The two main factors supporting the uptrend are uncertainty over the situation in Ukraine – who’s going to fill the demand void from the Black Sea region – and also the condition of the 2022 US winter wheat crop and concerns about spring wheat plantings.
“Obviously, we’re going to need more wheat from other sources in 2022 and that’s why it’s critical for our hard red winter wheat region to catch some moisture,” he said. “Up here, the market is hoping we will plant additional spring wheat acres, but this early March survey indicated it would be less.”
The USDA came out with a number of reports recently, including a supply and demand report on April 8. In a rare move, the USDA added a disclaimer that Russia’s military action has increased uncertainty in the market and assessments and projections, both regionally and globally, as well as in the short-term and long-term.
“It summarizes what the market is trying to evaluate and assess just how much near-term demand is going to be covered by other countries. And then longer-term, how much of the 2022 Ukrainian spring crop will even get planted and then how much of the winter crop will be harvested, “he said.
“A lot of analysts thought they’d adjust the Ukraine export projection much lower, but they only took it down to 700 million bushels compared to 735 million in its March projection,” he continued. “Part of their premise was that a lot had already been shipped and delivered. So there’s probably a limit to how low they can go for the 2021-22 marketing year. “
The USDA has been as high as 880 million bushels (MB) last fall, so the agency has already taken a chunk out of potential exports from Ukraine.
“Probably the most important number to gauge is what they will do with the 2022 marketing year projections, which start on June 1, and that will be the harvest of the 2022 Ukrainian crop this summer. Those numbers won’t be available until May, so we’ll still have some uncertainty in the market, “he said.
“Somewhat disappointing was that in the April supply and demand report, USDA raised Russian projections, so it is very unfortunate that Russia created this and caused all this market disruption in Ukraine but is now benefiting from that with this higher export projection,” he continued. General Chat Chat Lounge “They went from 1.18 billion bushels up to 1.21 billion, so essentially what Ukraine came down, Russia went up.”
USDA also raised export projections in Brazil and Argentina by about 50 MB combined. India’s export projections were kept the same, however, Peterson said there is some discussion that India’s actual exports are even higher.
“India is already at a level that is about four times higher than the last year. So India, too, is using this as an opportunistic situation, exporting more of their supplies that are obviously at some pretty high prices, “he said. “The net effect is that the USDA has lower overall world trade by about 110 million bushels, so even with raising Russian and other sources of wheat, the cuts they made to US projections, as well as Ukraine and the EU, more than offset that.”
One challenge for the US is to capture additional demand, not just speculative. As of right now, Peterson noted that major demand centers in the Middle East and parts of Africa have not yet been seen to fill that void in the US or Canada.
“They found some other closer origins, albeit lower quality wheat, but at prices that are a little cheaper than in the US,” he said.
Looking at what USDA did for the US supply and demand, it raised the expected national average farm price by another 10 cents a bushel to $ 7.60, which would be the highest since 2012. Even though USDA raised prices, it lowered export projections down to 785. MB from 800 MB. If that holds through the end of May, that would be the lowest export total since 2015.
Peterson explained that all the cuts took place in hard red winter wheat and soft red winter, two classes that compete more directly with Black Sea wheat. Plus, in the case of hard red winter, there has been a significant increase in the basis of values with a pretty acute shortage at US domestic mills.
“Again, it’s kind of priced itself out of a lot of the main export channels, at least in the short-term,” he said.
As of March 30, the US had sold 702 MB of all wheat. A year ago at this time, sales were at 925 MB, which is off 25 percent. With USDA’s new projection of 785 MB for the entire year, current sales are at 89 percent of that projection.
“There are certainly odds the USDA could lower that again in May if we struggle to capture sales for the next month or so,” he said.
By class, hard red winter wheat sales total 279 MB, which is off 12 percent from a year ago. More critical is the fact that the class is only at 90 percent of export projections and is going to need to see additional sales over the next couple of months.
Hard red spring wheat sales were at 195 MB, down 30 percent from a year ago. However, that is at 95 percent of USDA’s projections, so odds are pretty good that they will hold through May.
“There are definitely a lot of positives on the supply side of the market. But still, we need to see some additional demand to solidify that support, “he said.
Looking at production, the latest crop progress condition report on April 10 showed that only 32 percent of the US hard red winter wheat crop was in good-to-excellent condition. A year ago at this time, 53 percent of the crop was in good-to-excellent condition. Thirty-six percent of the crop is rated poor-to-very poor condition this year compared to 17 percent last year. So there is a lot of concern with the hard red winter wheat crop right now as it is entering some critical reproductive stages.
For part of that crop further south, it may be too late to benefit from additional moisture. In Texas, 80 percent of the crop was rated poor-to-very poor condition. So, obviously, a lot of it won’t make it to harvest. Further north, in Oklahoma and Kansas, about a third of the crop was rated poor-to-very poor. And in Montana, about 23 percent was rated poor-to-very poor, but that crop is further behind in development, so those numbers may get worse as the crop progresses.
About 26 percent of the crop is already headed out in Texas and about 5 percent nationally.
“The hard red spring wheat region is projecting some of what is in the midwest to a blizzard and snowfall for mid-April and a lot of western and central North Dakota,” Peterson said on April 12. “Obviously, the moisture is welcome. A lot of areas could receive an inch to two inches of actual moisture, some could even see more.
“The concern, especially if the storm slips further east where it is already a bit wet, could delay planting even further. So the market is going to have to balance the moisture benefit and near-term drought relief a lot against the region how quickly it is going to melt and what kind of planting delays it can create, “he added.
Planting progress of wheat is about 6 percent complete nationally, ranging from just 2 percent in North Dakota and 15 percent in South Dakota.
Current prices across the region are ranging from $ 10.86 to over $ 11 for nearby. New crop prices are about $ 10.50- $ 10.70.
“Nearby prices, which are exceeding $ 11 in some areas and approaching the high of $ 11.20, which was in early March at the onset of the invasion in Ukraine, fell to $ 9.90 in late March,” he said. “So the market continues to gain traction and upward momentum. We ‘ll see if that continues.
“The 2022 outlook by the USDA in May will be a critical factor as it will give us a better gauge of how much additional demand the US could expect from Ukraine and potential Russian shortages,” he concluded.
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