Hopes that the wheat market had already posted its harvest low were dashed last week when the U.S. Department of Agriculture raised its estimate of the spring wheat harvest.
The report was negative for prices but was really just a modest readjustment when placed in the context of the global wheat market.
And in that wider context, one has to wonder what it will take to lower production to the point that the growing world surplus starts to shrink.
The United States, once the dominant wheat producer, has slashed is production willingly through acreage reduction and unwillingly through drought, but that is not enough to reduce stocks and lift prices.
A deep and widespread drought in a key production region would make a difference, but we do not wish that on any farmers.
Otherwise, farmers around the world have to decide to plant less wheat, like members of OPEC pump less oil, but that does not seem to be getting much consideration.
When I speak of a widespread drought, I mean one bigger than the drought in the Dakotas and Montana that extended up into Canada.
It did reduce the U.S. wheat crop but not as much as had been expected.
The USDA last week pegged the spring wheat crop at 416.2 million bushels, up from the August forecast of 402 million.
That was at the high end of the range of traders’ expectations of 338 to 421 million bushels.
Last year’s crop was 532.2 million bu.
The USDA estimated a 7.7 percent decline between the number of acres seeded and harvested, which was more than normal. However, many in the trade expected the unharvested area would be even higher because of the number of crops that were cut and baled for feed.
The U.S. spring wheat crop was the smallest since the drought of 2002, when the crop was 388.9 million bu. In the severe drought of 1988, production fell to just 205.5 million bu.
In the 2002 drought, the abandonment rate was 8.3 percent and in 1988 it was a whopping 21 percent.
The December Minneapolis spring wheat contract had previously hit a low around US$6.14 a bushel Sept. 20 and then rallied to around $6.50 with many expecting the price to edge a little higher in the usual post-harvest rally.
However, as this column was written Oct. 2, the price was testing new lows below $6.10.
The wheat market will continue to struggle. Production is down in the U.S., Canada and Australia, but the impact is partly offset by a record smashing crop in Russia.
Winter wheat seeding this fall in the U.S. will likely stay at the ultra low level of last year or shrink even more.
As of Oct. 1, 36 percent of the U.S. winter wheat crop was seeded, down from the five-year average of 43 percent.
Concerns about dry soil in parts of the southern U.S. plains are fading because most of the region is expected to get good rain this week.
While economics force U.S. producers to limit wheat planting, adequate moisture levels have Russian forecasters suggesting farmers there will equal last year’s area or perhaps exceed it, raising the potential for another bin buster.
And there is no expectation of a big cut in winter wheat seeding in the European Union either.
So we will likely continue to plug along with unattractive wheat prices, hoping for a weather scare to develop somewhere to create a pricing opportunity for the 2018 crop.