European, Black Sea crops good Lower protein classes face biggest potential for falling prices
Some analysts think hard red spring wheat will soon regain its usual premium over winter wheat.
Unfortunately, the view is based on falling wheat prices attributed to good production prospects for winter wheat now growing in most parts of the northern hemisphere and not on an increase in hard red spring wheat prices.
“It’s more world wheat prices falling,” said wheat futures trader Austin Damiani of Frontier Futures.
“(Spring wheat is) going to be a little more resilient in terms of falling world wheat prices.”
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The intense drought in the U.S. plains has markets nervous, but Damiani thinks a large winter wheat crop is possible and most winter crops in Europe and the Black Sea region look good.
In most years, hard red spring wheat carries a substantial premium to hard red winter wheat and a large premium to soft red winter wheat. HRSW has higher protein and is the best wheat for quality bread products, while SRW is used for lower quality food, such as pastries.
HRWW can be used for either purpose but is generally used for lower quality bread products.
However, the Midwest U.S. drought and a dry fall in Kansas has caused a significant aberration, with HRWW rising to trade often at almost the same price as HRSW.
The U.S. HRWW crop went into dormancy in poor condition and for weeks sat exposed to the elements before receiving some snow cover.
The wheat crop in Kansas is now rated 39 percent poor to very poor, compared to 12 percent at the same time in 2012.
Only 20 percent is good to excellent, compared to 49 percent last year at the same point.
However, the hand wringing over the current condition of the U.S. winter crop is overdone, say some analysts.
Drew Lerner of World Weather Inc. said normal amounts of moisture should hit the central plains this spring as wheat comes out of dormancy, which could allow it to still produce a good crop.
Damiani agreed.
“Wheat’s a grass. It doesn’t need the big, heavy soakers,” he said.
“They don’t need to have their soil profile restored in order to have very good yields.”
A return to normal spring and summer weather in the U.S. central plains would likely weaken the strength of HRWW prices relative to other wheat types. Also, the slow pace of U.S. wheat exports this winter could lead to larger than expected carry-out stocks.
As well, generally good conditions outside the HRWW zone are allowing buyers to become more optimistic that the world will soon have a lot more wheat to consume.
Lerner said the U.S. SRW zone, in the Midwest, now has good conditions, as does most of Western Europe.
A few areas in Russia and Ukraine are too dry and in those pockets winter wheat is stressed, but most of that region’s growing areas are in good condition. North Africa’s crops are in excellent shape.
India is mostly doing well and has become an aggressive wheat exporter this year.
There are problems in China’s Inner Mongolia and northeastern regions, but conditions are good in most of the country’s wheat-producing regions.
“They have a potential for a huge crop,” Lerner said about China.
“The crop was well established and is likely to come into spring season in a very good manner.”
Wheat prices were relatively weak last year hitting a low of about $7.50 per bushel in the spring.
But when the extent of the U.S. Midwest drought became known they shot higher to about $10.50 in July, before settling back into a range of around $9.50 that lasted until the beginning of December.
Prices then slid $1 per bu. to $8.50, between early December and early January.
Recent strength lifted the spring wheat May contract to $8.65 per bu. on Jan. 28 and $8.41 for hard red winter.
The price outlook for next fall is weaker. A Reuters News Agency poll of 13 wheat market analysts released Jan. 28 found that new crop SRW futures price estimates for Dec. 31, 2013, range from $5.80 to $8 per bu. with an average of $6.80. That’s well below the $7.78 price of Dec. 31, 2012, but slightly stronger than on Dec. 30, 2011.
A weather risk premium should linger in wheat markets until the winter wheat new crop is near harvest. They will then likely give the premium back.
“Wheat should also be starting a downturn after a peak between March and July on weather concerns,” Farm Futures magazine senior editor Bryce Knur told Reuters.
Good moisture and expectations of large wheat acreages in the U.S. Northern Plains states and the Canadian West will likely build stocks of spring wheat. However, Damiani thinks spring wheat will maintain its price better than hard red wheat.
