July 12, 2001

Market Advisor: Take Advantage of Higher Wheat Prices

by George Flaskerud, Crops Economist
NDSU Extension Service

Recent price strength offers an opportunity to complete old crop spring wheat sales and sell any new crop spring wheat that is to be sold before November. Minimum price contracts may be the appropriate tool to use for selling both the old and new crop considering the changes that have taken place in the fundamentals, the basis and the uncertainty of the weather.

Supply and demand factors have changed in the last month, according to recent USDA reports, but the net impact of those changes on projected ending stocks is minimal. According to the Supply and Demand Report released by USDA on July 11, ending stocks for 2001-02 are projected to be 26 percent of total use versus 25 percent in the June report. The changes that have occurred are in the details.

Wheat stocks available at the beginning of the marketing year on June 1 were increased by 19 million bushels to reflect the survey-based stocks report released by USDA on June 29. The release of this report was probably uneventful because the market had likely already reflected the slow export situation at the time. On the other hand, a second USDA report that day did surprise the market.

The Acreage Report on June 29 revealed that fewer wheat acres were planted relative to the March Prospective Plantings Report. Other spring wheat acres were down 255 thousand (1.7 percent and durum acres were down 427 thousand (12.3 percent). Relative to 2000 acreage, other spring wheat acres were about the same and durum acres were down 897 thousand (22.8 percent).

All wheat production was projected to be down 11 percent from a year ago, according to the Supply and Demand Report. Decreases were projected for all classes of wheat: 7 percent for hard red winter, 5 percent for hard red spring, 19 percent for soft red winter, 19 percent for white, and 15 percent for durum.

Wheat export projections for the marketing year were increased by 50 million bushels from the June report so that they are now projected to be down only 15 million bushels from this past marketing year. Relative to this past marketing year, USDA projected an increase in exports of 35 million bushels for hard red winter wheat, an increase of 5 million bushels for hard red spring wheat, a decrease of 15 million bushels soft red winter wheat, a decrease of 30 million bushels for white wheat, and a decrease of 10 million bushels for durum wheat.

The outcome for exports will depend considerably on World wheat production, particularly the production of competing exporters. USDA reduced production projections for competing exporters by 5 percent from a year ago with half the decrease materializing since the June report. Decreases were projected for Canada and especially the European Union while an increase was projected for Argentina. Production in Australia was projected to be about the same as a year ago although it was reduced from the June report. Production projections were increased for the major importers by 1 percent. China’s production was projected to be down 4 percent from a year ago, unchanged from a month ago.

The tighter stocks situation for wheat relative to a year ago has resulted in a strong basis in Minneapolis relative to a year ago, although about normal historically. The to-arrive 14 percent protein basis was 32 cents on July 10 versus 17 cents a year ago (July average) and the five-year average of 34 cents (July average).

Weather will be a key factor, as always, between now and harvest. Sixty-eight percent of the spring wheat crop was rated good-excellent as of July 9, a slip of 3 percent from the previous week due primarily to the ratings for Minnesota and Montana. The spring wheat crop in North Dakota continues to improve with 83 percent rated good-excellent versus 81 percent the previous week.

The historical seasonal price pattern for spring wheat and durum is for prices to move lower into harvest. Hence, the suggestion to minimum price old crop spring wheat and the portion of new crop wheat that is to be delivered off the combine.

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Source: George Flaskerud, (701) 231-7377, gflasker@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu