By Bob Bailey, DTN Basis and Feedstuffs Analyst
I recently received an email from a subscriber asking what was in the coolers that participants of the North Dakota wheat tour had with them. What the questioner was really asking is how could the tour misjudge the crop by as much as they did? This individual felt that southern North Dakota from I-94 south to the South Dakota border and across the entire southern part of the state would not average more than 25 bushels per acre, which would comprise about 40{e7e4ba4d9a3c939171d79cae1e3a0df1d41e5a91c3c4158fbb92284b490bc9d3} of the North Dakota total. I am not sure how much of the total North Dakota crop is grown in that area of the state, but I can understand the subscriber’s pain.
The first thing we have to remember is the wheat tour took place in the last week of July and since then there has been a lot of weather events, mainly rain and cooler temperatures, that have affected crop potential. Most everyone knows that rain on ripe wheat is not a good thing. It takes away test weight and can affect quality. The weather this crop year has also been conducive to an increase in diseases, primarily scab.
Another issue is who goes on the wheat tour. Many of the participants are reporters from various news services and representative from various grain interests who may have never set foot in a wheat field before. They get some quick instructions on how to measure a field and estimate yield and are sent out on the tour. Now, the guides on the tour are the experts and I am sure they are helping and teaching the participants exactly what to look for on the fly, so to speak. So you have to ask yourself how valid are crop tours and do they provide any additional information to the trade that is not already known? I am sure this is a debatable issue as for some it provides a first-hand look at the crop, while for others it is just another estimate.
Looking back, the results of the Wheat Quality Council hard red spring wheat and durum tour that wrapped up July 28 found a lower overall average yield compared to the previous year. The average hard red spring wheat yield was 41.5 bushels per acre compared to 46 bpa last year. The tour covered North Dakota, parts of western Minnesota and northern South Dakota. Participants scouted 419 fields with 369 of them being hard red spring wheat, 31 durum wheat and 19 hard red winter wheat.
Participants in the tour reported many unplanted acres in the northwest and north central parts of the state and some disease pressure (primarily scab) in the eastern part of the state. The overall crop was behind the average growth pace with fields two to six weeks away from harvest.
The latest USDA crop report issued Aug. 11 showed spring wheat production to be 475 million bushels with a total supply of 690 mb due to a large carryover from the previous year. Total usage was set at 547 mb, which left ending stocks 143 mb down 30 mb from the July estimate.
Since the report there has been an issue about acres planted to spring wheat. USDA’s Farm Service Agency came out with a report that stated total spring wheat acres planted were down nearly 1 million acres to 11.7 ma from what USDA’s National Agricultural Statistics Service used in the USDA crop report. The difference between the two is FSA numbers are from farmers enrolled in federal farm programs, while NASS numbers are a sample of all growers. All this tells me is that we really don’t know how many acres are planted to spring wheat and it is hard to make estimates without that knowledge.
In the end it doesn’t matter how many acres were planted, but how many bushels were produced and that won’t be known until harvest is complete.
The latest crop progress report for spring wheat showed 29{e7e4ba4d9a3c939171d79cae1e3a0df1d41e5a91c3c4158fbb92284b490bc9d3} of the U.S. spring wheat crop is now harvested, up from 13{e7e4ba4d9a3c939171d79cae1e3a0df1d41e5a91c3c4158fbb92284b490bc9d3} last week and still below the average of 56{e7e4ba4d9a3c939171d79cae1e3a0df1d41e5a91c3c4158fbb92284b490bc9d3}. Harvest in South Dakota is 86{e7e4ba4d9a3c939171d79cae1e3a0df1d41e5a91c3c4158fbb92284b490bc9d3} complete, followed by Minnesota at 54{e7e4ba4d9a3c939171d79cae1e3a0df1d41e5a91c3c4158fbb92284b490bc9d3}, North Dakota at 21{e7e4ba4d9a3c939171d79cae1e3a0df1d41e5a91c3c4158fbb92284b490bc9d3} and Montana at 11{e7e4ba4d9a3c939171d79cae1e3a0df1d41e5a91c3c4158fbb92284b490bc9d3}.
Yield reports are all over the map with some producers getting yields less than 20 bpa and some getting yields close to 60 bpa. However, most of the reported yields are in the 25 to 40 bpa range and below producers’ expectations.
So what does all this mean for basis and cash prices? Hopefully it means stronger basis levels and higher cash prices, but that is not what we are seeing now. Basis levels lately have been on the decline, while futures prices are moving higher. Typically at harvest time futures and basis levels drop on pressure from large amounts of grain moving into marketing channels at one time. That is not happening in spring wheat this year because of the size and condition of the crop. There is a lot more outside interest in buying futures due to the crop situation, while demand remains lackluster.
Part of the reason demand is slack is because of high protein levels found in the 2011 HRW crop. Domestic mills are switching some of their mill grind which had been largely low to mid protein spring wheat with hard red winter wheat, due to cheaper protein premiums and, in part, more predictable rail logistics. However, even with the higher protein levels in the 2011 HRW crop, domestic mills will still look to use spring wheat in blends because of historically higher absorption and greater dough strength of HRS wheat and the smaller kernel size on the 2011 HRW crop, which has reduced flour yields.
On the export front, expectations of a rebound in Canadian and Australian crop quality are expected to pressure U.S. market share in parts of Asia and Europe. In Central and South America, the higher protein levels in HRW may cut into some of last year’s HRS demand in that region. At present, export demand is projected at 270 million bushels, but depending on the final outcome of the crop it is becoming more likely the exports will be lowered.
Tighter stocks and lower quality wheat will cause offering prices to rise, keeping the U.S. from being competitive in the world market.
Trade expectations are for a small crop with strong demand that will push cash prices and basis levels to new heights. But don’t get too excited. There is an old adage I am sure most have heard before: A short crop has a long tail. I will save that topic for another day after harvest is complete.
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Posted with DTN Permission by Haylie Shipp
