September ended with a sweet surprise for wheat and soybean prices, offering hopes of a happier winter than expected.
“It went out with a roar, as far as the wheat market was concerned,” said Joe Victor, a market analyst with Allendale Inc. of Minneapolis, about a Sept. 30 report by the United States Department of Agriculture.
The USDA cut its estimate of spring wheat and winter wheat production at a time of the year when it often boosts its estimates. It projected a total U.S. wheat crop of 2.1 million bushels, down from the August estimate of 2.17 million.
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The biggest drop was in spring wheat production, which fell about four percent. That’s good news for Canadian prairie farmers, because U.S. spring wheat is a prime competitor on world markets.
The USDA also found significantly less wheat in stock than it had expected, another bullish factor.
Wheat prices at the commodity exchanges in Minneapolis, Kansas City and Chicago leapt after the reports were released. The Minneapolis Grain Exchange spring wheat price jumped by 8.75 cents per bushel, Kansas City wheat rose 10 cents and Chicago surged 12 cents.
Winnipeg broker Ken Ball thinks few prairie farmers will be able to directly benefit from the recent wheat rally.
“This is making some respectable prices for Canadian producers, but not many growers are going to be able to take advantage of that,” said Ball.
Prairie producers can use Canadian Wheat Board programs to lock in U.S. futures prices for their wheat crop, as well as locking in basis levels directly.
Stronger U.S. and world prices for wheat will help all wheat growers in general, so long as the futures prices work their way into real world sales agreements.
Victor said his company expected to see a short-term rally in wheat prices because it is common at this time of year. Usually there is a 10-15 cents per bu. surge in wheat prices at some point around harvest, followed by a slow tailing down toward the end of the year.
His company sees current prices as a good sales trigger and is now locking in the numbers.
“We are taking advantage of this price run.”
Minneapolis spring wheat futures prices show almost no carry between the December and March futures months, so farmers are being given an incentive to sell earlier rather than later.
“It tells us it’s a good time to start moving this wheat,” said Victor.
Soybeans also benefited from the USDA stocks report, which came in below analysts’ expectations. The impact may be felt in a few months, if enough soybeans are sold over the winter to draw down stocks.
“The loss of that little bit may mean something down the road as supplies tighten up in the spring,” said Ball.
Any production problems in South America would make buyers worried about North American soybean supplies. That tiny hint of worry may be just what the soybean market needs to reverse course from a long-term slump.
“It might change the buyers’ psychology,” said Ball.
“Prior to the report it was: ‘I don’t have to worry, because this is no problem.’ Now they see a (reduced soybean stocks) number like that and say, ‘I’d better not turn down these prices because they might start going up.’
“It doesn’t take much to turn buyer psychology around.”
