Spring wheat prices reach 11-year high

By MARK CONLON, Editor
Friday, June 22, 2007 2:39 PM CDT

Spring wheat prices haven't been this high in 11 years. That's a milestone in and of itself, but what makes this current price rally even more unique is the timing - right as winter wheat harvest is taking place which is typically a down time for the market.

“It's kind of an odd trend heading into harvest of the winter wheat crop,” commented Erica Peterson, marketing specialist for the North Dakota Wheat Commission. “Prices keep continuing to rally based on supply concerns, weather issues and a bullish USDA supply and demand report.”

Peterson noted that spring wheat futures prices shot up 50 cents or more in the last week, and that Chicago and Kansas City both surpassed the $6 mark. Minneapolis was trading at $5.80-$5.90.

In its June 11 supply and demand report, USDA lowered winter wheat production estimates from 1.616 billion bushels down to 1.61 billion bushels.

“A lot of analysts, prior to USDA's report, didn't think it would go down quite that much,” Peterson said. “It appears the freeze damage earlier this spring and the wet conditions now are affecting the crop and the market.”

As of June 10 the winter wheat harvest in the U.S. was approximately five percent complete. That's far behind last year's pace of 17 percent and also behind the five-year average of 10 percent. The slower harvest is due mainly to wet conditions.

Producers are seeing lower than expected yields and low test weights as well, according to Peterson.

“So we have that issue with winter wheat, but the bigger issue is the overall world supply situation,” she said. “In the same report on June 11, USDA also lowered world production estimates from 22.7 billion bushels to 22.4 billion.”

A major contributing factor to the lower world wheat production estimates are continued dry conditions in Russia and Ukraine.

“Those were the big ones where we saw reductions and this will most likely mean lower Black Sea export supplies,” Peterson said. “There is also some concern over dry conditions in Australia and China, but so far those production numbers haven't changed.

Another factor contributing to the recent rally is that world ending stocks are expected to drop down to 4.1 billion bushels by the end of the 2007-08 crop year which would be a 30-year low.

Looking at the hard red spring wheat crop, Peterson said there is not too much to complain about right now.

“It's currently in very good condition,” she said.d “For the U.S. about 81 percent of the crop is rated good to excellent. For North Dakota that number is 89 percent.”

Crop conditions have improved because of rainfall across most of the spring wheat region, according to Peterson, although there are some ares where it is too wet. At present it's too early to tell how much of the crop will be lost, she added.

Peterson said it was an oddity that spring wheat prices are rallying at a time when crop condition ratings are so favorable.

“It's contradictory that prices continue to escalate, but the market seems to be more concerned with the overall world wheat situation, so spring wheat is being pulled along,” she said.

Locally producers have seen a good increase in cash prices over last couple weeks. Prices are ranging from $5 to $5.50 with an average of $5.30.

“Farmers have been taking advantage of these high prices and contracting some of their new crop for the fall,” Peterson said.

On the export side, hard red spring wheat sales for the new 2007-08 marketing year, which began June 1, are down down 27 percent from last year at this time. However, sales of all wheat classes are up 14 percent.

“For spring wheat, even though sales are down now, we could see them increase as the year goes on because of world supplies becoming quite limited,” Peterson said.

Another issue that could help spring wheat sales is the fact that last year's winter wheat crop had high protein and this year it is looking like protein content will be lower. That means there will likely be more demand for higher protein spring wheat, Peterson concluded.

Comments »

Comment on this story

Comments will be approved within 48 hours

Name:

Email: (optional)

Comments:

Image Verification: (Case sensitive)