Winter wheat is freezing in the US. But its prices are sizzling. Can durum wheat get in on any of this weather premium party?
It’s clear that the recent cold temperatures in the US will impact winter wheat crops.
But what does this mean for durum wheat prices?
We need to first review some of the conditions of all three horsemen that make of the majority of the wheat complex in North America: winter wheat, spring wheat, and durum wheat
For spring wheat, we noted how spring wheat stocks in North America continue to be relatively plentiful. Literally more than 9 million tonnes.
For winter wheat, Garrett walked through how Russia dominated market, but how American production was lower in every state, except for Illinois!
For durum wheat, the 2016/17 crop year ended with about 3 million tonnes.
Combined a decent crop – mainly that coming out of Canada – there was nearly 6.5 million tonnes of durum produced in 2017/18 in North America.
And that was enough to keep price rallies to a minimum. Alas, low prices cure low prices by way of low acreage.
We already know that this is true for US winter wheat: “Lowest wheat area in 100 years’ is a headline that we’re getting sick of seeing.
Back to durum wheat prices though.
We’ve seen a few pops here and there, but this winter wheat price rally isn’t ultimately about durum wheat production risks.
And that’s what we need.
Thus, the one thing that could propel durum wheat prices is the interpretation of drought monitor reports of the next few weeks and months.
We’ve noted how dry it is in the past and if stays cold without much snow, it creates further soil moisture risk for hard red spring wheat areas.
As such, over the next few weeks and months, we might be looking simultaneously make sales on both 2017/18 old crop durum and 2018/19 new crop durum.
To be clear: we’re not pulling the trigger yet, but durum wheat markets have a history of being volatile. And in that volatility is where we capitalize.
US flags dryness, freeze damage to winter wheat, which faces more “extremely cold weather”
US officials highlighted the setback to winter wheat crops from cold and dry weather, as meteorologists forecast more freezing temperatures ahead – although centred further east than the latest cold snap.
US Department of Agriculture scouts reported a decline in winter wheat condition across the key southern Plains growing region in December – a month marked by low precipitation in many parts, leaving crops open to the cold temperatures which struck late on.
In Oklahoma, the second-ranked winter wheat growing state, scouts crop rated 15% of crop in “good” or “excellent” condition as of the close of last month, the lowest year-end figure since 2012, and a reading down from the 30% recorded as of late November.
“Oklahoma experienced cold and dry conditions during the month,” the USDA said.
It noted that as of December 26 “76% of the state was in the moderate to exceptional drought”, while reporting that temperatures fell as low as 1 degree Fahrenheit (-17 Celsius) on the last day of the month, as the US freeze took hold.
‘Dry conditions accompanied by cold snaps’
In Kansas, the top US winter wheat-producing state, the proportion of winter wheat rated good or excellent closed December at 37% good or excellent, a drop of 14 points over the month, and also the lowest year-end reading since 2012.
The five-year average rating is 46% good or excellent.
USDA scouts reported at 77% of Kansas topsoil was short or very short of moisture – up from 39% at the close of November.
Meanwhile, in Colorado, the proportion of winter wheat rated good or excellent dropped 18 points over the month to 48%, amid conditions marked by dryness, with “minimal seasonal snowfall across the state.
“Reporters in all districts noted that insignificant moisture was received during the past month and that snow was too cold to contain much moisture content,” the USDA said.
In the north east of Colorado, scouts “expressed concern that dry conditions accompanied by cold snaps without the benefit of snow cover might have hurt fall seeded wheat”.
In Texas, a separate report from the Federal Reserve revealed dryness threats to winter wheat, with a report from one northern country that “approximately 80% of wheat planted… has not emerged”.
The data come amid a heightened focus on prospects for US winter wheat, thanks to cold temperatures which has extended into this week, too.
Weather service MDA noted that temperatures were “especially” cold on Monday morning, “when lows dropped below 0 degrees Fahrenheit (-18 Celsius) across all of the Midwest and most of the Plains, with temperatures as low as -45 Fahrenheit (-43 Celsius) in some northern areas.
“Snow cover was sufficient to protect winter wheat from the extreme cold across the northern Plains and northern and central Midwest, but some winterkill damage was likely across eastern Colorado, much of Kansas, Missouri, and southern Illinois, where snow cover was lacking,” MDA said.
Indeed, “widespread winterkill occurred Monday morning in Kansas and far north western Oklahoma”.
‘Extremely cold weather will continue’
And MDA forecast further cold temperatures to come, although further east than the Plains, saying that “extremely cold weather will continue across the central and eastern US this week, but the core of the cold should focus upon the Midwest and north east.
“Additional winterkill damage will be possible later this week across the south western Midwest, where snow cover will remain thin.”
Crops in the Midwest – which grows soft red winter wheat, as traded in Chicago, rather than the hard red winter wheat sown in the Plains – have up to now fared better than that in the likes of Kansas.
The proportion of winter wheat in Illinois rated good or excellent as of the end of last month, at 56%, down a more modest 6 points from the end-December reading.
Crops in the northern Plains have suffered less too than those in the south, with the South Dakota good or excellent reading, while still weak at 20%, up 2 points for last month.
The 64% of Nebraska wheat rated good or excellent as of the end of December represented an improvement of 5 points for the month.