Drilling Into 2019 Wheat Acres
Last week, in the first full week of trading for the new month and calendar quarter, grain markets were mostly able to retain their gains for the week, albeit Friday, April 5th was a mostly down day for the complex. For the week, Minneapolis hard red spring wheat was the biggest loser while oats led the complex in gains (what do oats know, though?) For HRS wheat, no support has been able to be found from a technical standpoint, and there’s buzz that more spring wheat will get planted in Western Canada this year instead of canola, thanks to political issues.
In the U.S., we know from the USDA’s March Prospective Plantings report that American total spring-planted wheat acres should fall by 7% year-over-year to 14.2M acres. This includes 12.4M acres of hard red spring wheat and 1.42 million acres of durum. If realized, the area for these two crops would be down 2% and 25% from 2018/19, respectively.
Digging into the details though, it’s widely expected that North Dakota will see its HRS wheat acres jump 7% year-over-year to 6.7M, but durum acres in the Peace Garden State should fall 32% year-over-year. In Montana, HRS wheat acres should fall 10% to 2.6M acres, Minnesota is expected to see a 5% decline year-over-year to 1.53M acres, and South Dakota is forecasted to drop 3% to 1.02M acres. We might see even less HRS wheat planted in the Gopher State because of the snow, rain, and subsequent flooding that’ll likely force most air drills into the field after the ideal planting window. The alternative to HRS wheat in both Minnesota and North Dakota because of a late seeding start is most likely going to be soybeans, given strong domestic demand.
Switch gears to what’s happening right now, Vietnam recently approved Russia as a potential export partner for wheat trade. Vietnam has some strict guidelines in terms of foreign material, namely field thistle coming from Russia. Consider this: Vietnam imported nearly 2.5 MMT of wheat from Russia in the 2018 calendar year, making them the third-largest destination for the Black Sea country. However, that pace has slowed down recently, which is why the stamp of approval by Vietnamese authorities is important to note.
And coming back to North America, hedge funds are sitting on a record short position of Kansas City HRW wheat. The short position in Chicago SRW wheat futures is also sizeable, albeit not a record. Right now, there’s nothing in the landscape that would potentially threaten U.S. winter wheat production. This was clearly evident in the April 8th USDA crop progress report which showed that 56% of the U.S. winter wheat crop is rated in good-to-excellent health. That’s a significant improvement over the 30% G/E rating of the U.S. winter wheat crop at this time a year ago.
Overall, there’s not much weather premium to rally off right now, and the decrease in U.S. hard red spring wheat acreage is seemingly going to offset the increase in Canada. Add in some acceptable growing conditions in the Black Sea and even Australia getting some much-needed rains, all we can do is focus on readying ourselves for Plant 2019. Much like you have prepared your seeding plan for this year, should premiums start to come back to the market in May/June, have a plan for what you’d be looking to sell both old AND new crop wheat for.
President & CEO | FarmLead.com