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Weak price makes wheat harvest and seeding a chore

I hope the current dismal state of the wheat market will encourage a further drop in American winter wheat acreage this fall.

Meanwhile, western Canadian farmers are applying the word dismal to their harvest, where rain Sept. 9-12 further stalled progress. The moisture also likely damaged the quality of wheat and durum.

The largest accumulations north of the international border were in southern Saskatchewan, which is durum country. Even larger accumulations were reported in western North Dakota and Montana, where more than a third of the wheat was still in the field.

Farmers north of the border could only wish they had that much in their bins.

Saskatchewan Agriculture reported that as of Sept. 9 only seven percent of wheat and 10 percent of the durum in the province was combined and in the bin. Warm, sunny weather returned Sept.13 but it would take some time for fields to dry and support heavy machinery.

In Saskatchewan, this harvest is shaping up later than the fall of 2014, which was the most recent harvest from hell. At least there has not been the heavy snow that Alberta saw in 2014.

These problems are having little effect on the wheat futures markets, which are comfortable with the ample global supply of wheat. The market impact will be seen in the quality and protein spreads in the cash market.

Speaking of global supply, the U.S. Department of Agriculture’s September supply and demand report did little to alter the outlook.

It trimmed the forecast for Australia’s wheat to 19 million tonnes from 21 million in the August report. It also shaved a little from Russia’s and Ukraine’s crops but slightly increased the European Union’s harvest.

The net result was to lower global production to 765.5 million tonnes from 768.1 million last month, but the USDA also lowered its forecast for world consumption and trade.

In the end, it sees rising global year end stocks at 286.5 million tonnes, up from last month’s forecast of 285.4 million and last year’s 277.2 million.

The result is weak wheat prices even for this time of year when annual lows are usually set. Earlier this month, the Minneapolis spring wheat futures market touched the lowest level since the fall of 2009 and Kansas hard red winter wheat touched the lowest since the winter of 2006.

The winter wheat price is taking a particularly bad beating. Because Kansas hard red winter wheat has higher protein, its market usually has a small premium over the Chicago soft wheat market but it has been at a large discount through the summer. As I write this on Sept. 12, December Kansas wheat is at US$4.04 per bushel, Chicago is at $4.84 and Minneapolis is at $5.07.

Soft wheat is tied more closely to corn than hard wheat and so the Chicago market has had a bit more support this year from the worries about corn’s seeding problems and slow maturity. Indeed Chicago wheat, which has the largest volume of trade of the three markets, is not at multi-year lows.

Another negative for U.S. hard red winter wheat prices is that its stocks at the end of 2019-20 are forecast to be 68 percent of total demand while soft wheat stocks are forecast at 38 percent.

In the 10 days or so, wheat futures appear to have stopped their decline and have stabilized but have not really rallied.

The weak price has farmers in Kansas, Oklahoma and Nebraska wondering if it is worthwhile planting wheat. Last year, they dropped seedings to 31.8 million acres, down about two percent from the previous year and the smallest since 1910. That is down about 10 million acres since the start of the decade.

I saw one Nebraska farmer on a web discussion site refer to wheat as poverty grass. Wheat is definitely out of favour on the southern Plains, but one wonders if they can drop the acreage much lower given rotational needs.

Also, the market impact of U.S. wheat acreage changes is muted by the growing role of Black Sea wheat in global trade.

The U.S. wheat farmer’s competitiveness on international markets is eroded by the strength of the American dollar, which is riding near a two-year high. The weaker currencies in Russia and Ukraine partly mask the weakness of global wheat prices.

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