Market volatility results in ‘choppy' wheat prices

By MARK CONLON, Editor
Friday, May 11, 2007 5:34 PM CDT

There is still concern regarding the impact of freezing temperatures on the nation's winter wheat crop and delayed planting of spring wheat to cause volatility in the U.S. wheat market. As a result prices have been up and down and all around.

“Last week futures prices surged higher because of the concern of freeze damage to the winter wheat crop and also because of the wet planting conditions that have been inhibiting planting of spring wheat,” Erica Peterson, marketing specialist for the North Dakota Wheat Commission reported on May 2. “Those concerns appear to be diminishing lately as there's a wide range in opinion of what people think the damage is and how it will affect total production. As a result, futures prices are kind of choppy. ”

Minneapolis futures prices were in the $5.20-$5.25 range, she said. Local cash prices were doing pretty well across the region with prices averaging $4.93. The national average was $5.03.

“This is the time of year when cash prices typically top out, jut prior to winter wheat harvest beginning,” Peterson said. “After May, futures prices start going down. But right now there's still a lot of volatility. We could see prices surge again depending on what happens.”

According to participants on the U.S. Wheat Quality Council's Kansas crop tour, the condition of the winter wheat crop seems to vary from field to field.

“Some fields are completely destroyed, but others look good with high yield potential,” Peterson said. “So it's still up in the air. The final extent of the damage won't be known until they start harvesting the crop.”

Peterson noted there are other weather related concerns around the world that are also influencing the market to a degree. For instance, parts of Europe are experiencing very dry conditions. Although the southern part of Europe did receive some precipitation of late, the northern parts remain dry.

Eastern Europe recently had some freezing temperatures and there is concern of damage to the more advanced winter wheat crop there.

Australia, which went through a severe drought last year, recently got some much needed precipitation, but how much good it will do remains to be seen.

“The precipitation is being absorbed quickly,” Peterson said. “And there was no rain in the future forecast. The concern is there's not enough moisture available for when planting starts.”

Another reason these weather concerns are affecting the market is due to the fact there is a tight stock situation in the U.S. and elsewhere.

“World wheat production is expected to increase five percent up to 22.9 billion bushels, however, ending stocks at the end of May are expected to be just 4.2 billion bushels,” Peterson said. “For 2008, the stocks situation isn't expected to improve much - only increasing to 4.3 billion bushels. That is a very small increase over the 26 year low expected for for 2007 so stocks will not be replenished much.”

Stats Canada recently confirmed in its planting intentions report that spring wheat acres there will drop by 16 percent from 2006 - going from 20.3 million acres last year to 17.1 million this year.

Another factor being watched closely in the market is planting progress for the nation's spring wheat crop. Producers had been lagging behind due to early April snow, rain and cold temperatures. However, warmer, drier weather in late April and early May allowed producers to make up some ground.

As of April 29, 34 percent of the hard red spring wheat crop in the U.S. had been planted compared to just 14 percent the week prior. That's still behind the five-year average of 45 percent, however. In North Dakota, planting was at 22 percent.

“Farmers are expected to make some progress with the good weather and they may catch up to that five-year average soon,” Peterson said.

There has been nothing exceptional taking place on the export side, Peterson said, noting that the U.S. is close to reaching the 900 million bushel export goal set by USDA. As of April 26, U.S. exports of all wheat stood at 880 million bushels.

“So we're very close to reaching that goal,” she said. “But there's nothing new in exports to boost prices.”

Exports of hard red spring wheat have actually already surpassed USDA's estimate of 247 million bushels. To date, 254 million bushels of HRSW has been sold on the export market. Peterson said there are no big tenders on the horizon before the market year ends on May 31.

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