Market Insider

Less Durum, More Spring Wheat in the US in 2018?

Less Durum, More Spring Wheat in the US in 2018?

Wheat prices have been trading generally sideways but with bouts of volatility as the market deals with more geopolitical risk. This is entirely speculative risk though, whereas the likes of the USDA’s acreage reports out at the end of March are more concrete. These acreage estimates set the goalposts for production potential in America. Let’s break them down.

The USDA’s Prospective Plantings report showed the market that American farmers will plant 2 million acres of durum wheat in 2018. This is 13% lower than last year’s 2.3 million acres. Compared to the five-year average of 1.89 million acres though, 2018/19 US durum acres are 6% higher.

Going into the report, the average guesstimate for wheat durum was 2.38 million acres. Thus, the market viewed this news as bullish. In breaking the acreage down state by state, here’s what’s notable.

·       North Dakota:  1 million acres (down 21% year-over-year; down 8% from the five-year average);

·       Montana:  800,000 acres (down 4%; up 34%)

We do know, however, that final US durum acres tend to be revised higher from the March estimate by the USDA when the growing season is done. This is also the case for US spring wheat, which is probably notable, because the USDA’s 2018 acreage forecasts are already bearish. They showed, that that American farmers will plant a little more than 12.6 million acres of spring wheat in 2018. This is nearly 15% higher than last year’s 11 million acres of spring wheat. It’s almost about 4% higher than the five-year average of 12.1 million acres

Going into the report, the average guesstimate for spring wheat was for about 11.5 million acres. In breaking the acreage down state by state, here’s what’s notable.

•      North Dakota: 6.4 million acres (+19.6% YoY; +8.8% from the 5-year average)

•      Montana: 2.5 million acres (unchanged YoY; -5.7%);

•      Minnesota: 1.6 million acres (+38%; +25.5%) and

•      South Dakota: 1.05 million acres (+8.2%; -10.5%).

Given the ongoing drought conditions, it appears that farmers are betting on an improved weather cycle and the possibility of premiums for higher protein wheat. However, the key thing to note is Old Man Winter sticking around still. With the heavy snow and colder temperatures that Western Canada and the Northern Plains are seeing right now, there are more thoughts that less wheat and canola will get planted, and instead, more barley, soybeans, and oats will get seeded.

And the marketing is reacting rather bullishly to this news. This past week – the first full week of trading in April - old crop futures prices in Minneapolis rallied 2.5% for the week, to gain nearly 15¢ and close back above $6 USD per bushel. For new crop prices off the December 2018 contract, prices also gained nearly 15¢ to close at $6.22.

On the cash markets in Western Canada in the past two weeks, CPS wheat has been able to follow US winter wheat markets higher, gaining an average of 11% to sit closer to $5.50 CAD / bushel. Spring wheat prices were also able to improve a bit on the aforementioned weather conditions, but ideas of larger Canadian durum acres and lower export demand are pressuring durum prices. We’ll know those acreage numbers for sure on Friday, April 27th when Statistics Canada gives us their first estimate of 2018 Canadian acres.

To growth,

President & CEO |