Market Perspective

Wheat markets, especially the futures markets, have remained under pressure the last few weeks. Increasing world supplies, a record upcoming corn harvest and a stronger U.S. dollar have encouraged speculative funds to increase their short positions in the Chicago wheat futures to nearly 400 million bushels. World wheat prices have also been pressured by aggressive pricing out of the Black Sea, as the unrest between the Ukraine and Russia has weakened both of their currencies, making their exports even cheaper, relative to the U.S. dollar. World wheat carryovers for next year are now pegged at 196.4 million metric tons, up from 192.96 last month and 186.5 million metric tons this past year. In the U.S., wheat carryovers are expected to increase from 590 million bu this year to 698 million bu for next year.

In addition, both the U.S. corn and soybean crops are likely to set records this year. U.S. corn production this year is expected to exceed 14.4 billion bu and leave a carryover next year of over 2 billion bu. Soybean production is expected to be close to 4 billion bu with a carryover next year of 475 million bu. Both the corn and soybean carryovers are the largest the U.S. has seen in nearly 10 years.

Despite the higher production numbers, there are still quality concerns for wheat in many places. Up to half of the wheat crops in France and the Ukraine are feed quality because of excessive rains. In the U.S., the spring wheat crop in the Northern Plains and up into Canada has also been hurt by too much cool, wet weather. So far Australia’s wheat crop appears okay, but it is not a bumper crop, and there are growing concerns in South America about dry weather.

In the PNW, late rains in southern Idaho and Montana also hurt the crops there. The white wheat crop in Idaho supplies the domestic mills in Utah and California, but those end users are now looking to originate white wheat from Oregon and Washington. The hard red winter wheat crop in Montana was harvested before the rains hit but the dark northern spring crop was hurt much like the crop in North Dakota.

In the latest USDA Stocks and Small Grains Report, which came out on Tuesday, the USDA lowered white wheat production in the pacific northwest by nearly 20 million bu from last month and over 40 million bu from last year. That came as no surprise to anyone living here, but at least USDA acknowledged the fact.

The Portland market has already come to the realization that club wheat is in short supply. Despite the selloff in wheat futures, club wheat prices are higher than they were a year ago. As long as the Japanese do not adjust the percentage of club in their western white blend, then prices should stay firm. The same is true for high protein dark northern spring. Because of the quality issues in the Northern Plains and Canada, good quality dark northern spring is needed by the market.

The soft white wheat market has reacted a little to the short crop, but not to the extent that the club wheat and the dark northern spring markets have. Basis levels for white wheat have strengthened but not enough to offset the decline in the futures. But with the drop in the production numbers for white wheat by USDA, the end users of white wheat, both domestically and in Asia, should start to get a little concerned, especially with the condition of next year’s wheat crop in the field. We should, at some point, see the law of supply and demand take hold for white wheat. The question, as always, is “when will that happen?”