Dry conditions across the U.S. northern plains and spring seeding setbacks in Western Canada could boost prices
A developing drought in the United States northern plains, early signs of a low protein U.S. winter wheat crop and planting problems in Western Canada could spark a spring wheat price rally, say analysts.
Jim Peterson, marketing director for the North Dakota Wheat Commission, says it has been hot and dry in Montana, western North Dakota and South Dakota.
“With our recent trends, we didn’t anticipate a large area to be as dry as it is right now,” he said.
According to a map prepared by the U.S. Department of Agriculture, much of the Northern Plains is abnormally dry with a growing pocket extending across both sides of the North Dakota/South Dakota border experiencing moderate drought.
South Dakota is expected to see temperatures in the high 20s to low 30s all this week.
As of June 4, 45 percent of the U.S. spring wheat crop was rated fair, poor or very poor compared to 38 percent the week before and 21 percent last year at the same time.
But there could be some relief around the corner. MDA Weather Services forecasts that dryness in the northern plains will ease by mid-June as the region receives some much-needed rainfall.
“If we catch rain our crop is going to bounce back,” said Peterson.
Meanwhile, growers in the central and southern plains have begun harvesting a U.S. hard red winter wheat crop that is going to be small and possibly low on protein.
Harvested acres of winter wheat will be the smallest in more than a century. The USDA on May 10 forecast 737 million bushels of hard red winter wheat production, a 32 percent decline from last year and the smallest crop since the drought of 2006-07.
Early sample results indicate an average protein level of 10.6 percent but that is after analyzing only 14 of what is expected to be 530 samples.
Peterson said the early samples are from areas that did not experience the frosts, late-April snowstorm and the damage caused by wheat streak mosaic disease.
He believes protein levels will rise as the weather and disease-damaged crop arrives in the elevator system because yields will fall and as yields fall, protein levels tend to rise.
However, it has generally been a wet and cool growing season on the southern plains, which often results in a lower protein crop.
“If it would come in another low protein year that’s very positive for U.S. and Canadian spring wheat producers,” said Peterson.
Bruce Burnett, director of markets and weather with Glacier FarmMedia, said plentiful rainfall and low fertilizer use will result in a low protein U.S. hard red winter wheat crop but he believes it won’t be as bad as it was last year.
That will put more pressure on spring wheat to perform but the U.S. crop is off to a rocky start and conditions haven’t been ideal in Canada, either. It is dry in the southern Prairies and too wet to seed in some areas of the north.
He doubts growers will be able to plant the 16.66 million acres of spring wheat they told Statistics Canada they intended to plant.
“It’s something the market should be paying some attention to here,” said Burnett.
Some U.S. millers are already hedging against a poor quality winter wheat crop by buying supplies of old crop spring wheat.
Expectations of a low protein winter wheat crop have been somewhat factored into futures markets with Minneapolis spring wheat selling at a healthy premium to Kansas City winter wheat.
Peterson believes the combination of a poor quality hard red winter wheat crop, drought-stressed U.S. spring wheat crop and the dismal quality of carryover from the 2016 Canadian spring wheat crop could spark a price rally.
He has spoken to millers who are banking on an ample spring wheat crop because they need it to blend with plentiful stocks of low quality hard red winter wheat from last year’s record-yielding crop.
Peterson believes the first target will be wheat with 14 or 15 percent protein levels but if millers can’t get their hands on that, they will start accepting wheat with lesser protein, boosting the entire spring wheat complex.
“I’ve heard some speculate that another $1 on the market probably would not be out of the question,” said Peterson.
Burnett said there would have to be an extreme yield-sapping drought to generate that type of price response. Minneapolis July wheat is already selling for about a $1.50 per bushel premium over Kansas City wheat.
“If you were to add another buck to that, that’s a very substantial premium,” he said.
Any price rally in the U.S. market will be tempered by the global glut of wheat and prospects of another large global crop coming.