As temperatures soar into the mid 30s C in the already dry U.S. northern Plains this week, spring wheat futures boiled over with the strongest rally in about six years.
The last major jump in spring wheat futures was in the second half of 2010 and early 2011, when prices rose from $5 per bu. to more than $9 per bu.
Drought in the northern Plains may be driving this rally, but the USDA’s June 30 acreage report was also bullish.
The USDA estimated all U.S. wheat at 45.7 million acres, down nine percent from 2016 and the lowest acreage since records began in 1919. Spring wheat was estimated at 10.9 million acres, six percent lower than 2016 and below the range of the trade’s estimates .
Kostal said the USDA report “fine tuned” an existing perception in the market: that a shortage of quality wheat is possible.
“The beginning inventory of higher quality, higher protein spring wheat was negligible,” he said.
“Now you’re running into adversity in the U.S…. You’re starting to get into some crop condition numbers that would correlate to some pretty poor (production) numbers.”
As an example of the difficult growing conditions in the region, a June 25 crop progress report for Montana rated nine percent of the crop as very poor, 27 percent poor and 42 percent fair. The national condition rating for spring wheat was the worst since the drought of 1988.
Spring wheat and other crops are struggling because April, May and June were unusually dry in much of the northern Plains.
U.S. National Weather Service data for western North Dakota shows that:
- Precipitation in Minot was 125 millimetres below normal from March 1 to June 25.
- Precipitation in Dickinson, N.D., in that period was 110 mm below normal.
Chauncy Schultz, a National Weather Service meteorologist in Bismarck, N.D., said a significant part of the region is lacking moisture.
“The latest drought monitor (report), we did see an expansion of what we consider D3, or extreme drought,” he said, noting that growing conditions are worsening in southwestern North Dakota
The U.S. Drought Monitor rates droughts from D0 to D4, with D4 being an “exceptional drought.”
The geographic area with ex-treme drought could expand further in July because scorching weather is forecast for the northern Plains.
“It looks like the next two weeks, for sure, are going to switch to a rather hot pattern,” Schultz said.
“We’re going to be in true heat. Nineties and 100 degree F temperatures are not out of the question…. You combine heat with spotty chances of showers and thunderstorms, it’s only going to exacerbate conditions.”
The drought and wheat prices dominated market news in late June and early July, but there were other acreage nuggets in the USDA report.
U.S. durum acres, also mostly grown in the drought area, are estimated at 1.92 million, down from 2.4 million in 2016.
However, canola acres are projected at 2.16 million, up from 1.71 million last year.
Most of the canola gains came in North Dakota, where growers planted 1.7 million acres this year, compared to 1.46 million in 2016.