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September 30, 2004 Market Advisor: Factors Influencing Wheat Prices
Minneapolis December wheat futures staged a 57-cent rally between Aug. 16 and Sept. 13 before declining to $3.72 on Sept. 21. The direction of prices into the period of a normal fall high, October through November, will depend on a number of factors. Weather continues to be a major price factor. Nineteen percent of the spring wheat crop (24 percent in North Dakota) remained to be harvested as of Sept. 19. In Saskatchewan, only 9 percent has been harvested as of this same date. For durum, 50 percent remained to be harvested in North Dakota and 84 percent remained in Saskatchewan. As of Sept. 21, the weather forecast is favorable for harvesting. The six-to-10 day forecast (Sept. 26 to 30) calls for above-normal temperatures and below-normal precipitation. But, the quality of the unharvested crop remains to be seen. Also, additional time may be needed to complete harvest of late maturing wheat, especially in Canada. The pace of wheat exports is also crucial to the price. As of Sept. 9, wheat export commitments (shipments plus unshipped sales) were 3 percent ahead of a year ago and 18 percent ahead of the five-year average. In contrast, USDA is projecting that exports will be down 18 percent from a year ago for the marketing year ending May 31. Obviously, USDA believes that the pace of exports will slow considerably once the Canadian and other wheat crops become available to the export market. Relative to a year ago, export commitments to date of hard red spring (114 percent) were ahead of hard red winter (84 percent), but below soft red winter (130 percent) and white (129 percent). For durum, commitments (58 percent) were down considerably from a year ago. USDA is projecting that exports, relative to a year ago, will be 68 percent for hard red winter, 88 percent for hard red spring, 108 percent for soft red winter, 94 percent for white and 68 percent for durum. China has been the most aggressive buyer relative to a year ago, buying 1.9 million metric tons (million metric tons) from the United States to date. USDA is projecting that China will import from all sources a total of 8 million metric tons. How much more wheat is China likely to buy from the United States? During the last marketing year, China imported 3.75 million metric tons, of which 33 percent was from the United States. During 1990-2003, China’s wheat imports from the United States as a percent of its total imports ranged from 17 percent to 44 percent and averaged 30 percent. China’s additional imports from the United States are likely to range between none and 1.6 million metric tons based on USDA’s import projection for China and its history of purchases. Keep in mind that no one knows for sure how much wheat China will import and where. Hard red spring wheat may benefit from changes in transportation costs. According to the USDA Ag Marketing Service, grain vessel rates from the United States to Japan have increased more from the Gulf than from the Pacific Northwest during the past year. However, this will benefit both U.S. and Canadian spring wheat exports. Another factor to watch is the difference between nearby Minneapolis futures and Chicago futures for wheat. When spring wheat supplies are tight relative to demand, Minneapolis tends to trade 50 to 90 cents over Chicago. Minneapolis was at a premium of 45 cents on Sept. 21. The recent high was about 52 cents. In addition, the premium for protein is very high. In the Minneapolis cash market, the premium for 15 percent protein over 14 percent was $1.15 on Sept. 20. Protein premiums tend to peak September through November. ### Source: George
Flaskerud, (701) 231-7377, george.flaskerud@ndsu.nodak.edu |
Market Advisor: |
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North Dakota State University |
