NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665

May 6, 1999

The Market Advisor: Positives and Negatives of Preharvest Wheat Sales

George Flaskerud, Extension Crops Economist
NDSU Extension Service

A 39-cent rally primarily in March got Minneapolis spring wheat September futures to a high of $3.73. But by May 4, the September futures price had fallen to $3.30. A portion of anticipated wheat production should have been contracted on that rally. Additional preharvest sales may still be warranted if less than one-third has been sold.

A number of factors still point to the possibility of lower prices, particularly during harvest. Production of all wheat may be down from a year ago, but supplies could be nearly as large as they were for the 1998-1999 marketing year because of large carryover stocks.

The hard red winter trend yield for 1999 is 35.4 bushels per acre, but unofficial estimates indicate that the actual yield could be closer to last year's record of 43.2 bushels, or the 1997 yield of 38.3 bushels. Soft red winter wheat yields may also be above trend.

Substantial Commodity Credit Corporation loans are scheduled to mature in the months ahead. As of March 31, loan maturities were 42.1 million bushels for May, 38.1 million bushels for June, 21.3 million bushels for July, 8.6 million bushels for August, 16.1 million bushels for September, 16.2 million bushels for October, 7.7 million bushels for November and 19.6 million bushels for December.

Planting progress of spring wheat and durum is way ahead of the five-year average. As of May 2, 62 percent of the spring wheat and durum had been planted, as compared the five-year average of 30 percent on that date.

The total acreage of spring wheat and durum is expected to be about the same as a year ago in the United States and Canada combined, although spring wheat is expected to be 105 percent of last year's level and durum 86 percent. Spring wheat acres are expected to be 98 percent of a year ago in the United States and 110 percent in Canada. Durum acres are expected to be 112 percent of a year ago in the United States and 72 percent in Canada.

Spring wheat futures in Minneapolis could erode more than wheat futures in Chicago if planting intentions are achieved, growing conditions remain favorable and substantial bushels under loan are sold. September futures in Minneapolis were at a 59-cent premium to Chicago as of May 4. Last year, the premium averaged 69 cents in June, 69 cents in July, 71 cents in August, 63 cents in September and 70 cents in October. The 10-year average premium (1989-98) is 29 cents in June, 16 cents in July, 17 cents in August, 5 cents in September and 11 cents in October.

While a number of factors indicate the possibility of lower prices on the horizon, there are also some reasons to not make additional preharvest sales at these price levels. September spring wheat futures are already lower than they were at this time last year. Better pricing opportunities could materialize during the summer, and prices could be better by November.

A weather scare could offer a better preharvest marketing opportunity than is currently available. Serious price resistance in the September spring wheat futures market would not be encountered until a price of about $3.65 is reached.

A lot of growing season remains before crops are in the bin. Even the winter wheat is still vulnerable to hot weather at the wrong time. Dismal corn yields would also benefit wheat prices, since a lot of wheat is currently priced at feed value.

At these low prices, fewer acres of spring wheat and durum may be planted than expected. Because of favorable loan rates, more acres may be planted to soybeans, canola, sunflowers and flax. A report on actual acres planted will be released by USDA on June 30. It is possible that the report will be a surprise and a turning point in the wheat market.

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Source: George Flaskerud (701) 231-7377

Editor: Dean Hulse (701) 231-6136