Where do Winter Wheat Prices go in 2020?
Winter wheat prices have been getting a little more attention of late, as rallies on the futures boards have sparked some renewed interest in a complex that’s been stuck in a bit of trading range the last few months. That said, Chicago soft red winter wheat prices have had a much larger trading range of about 80₵ USD/bushel, whereas Kansas City hard red winter wheat prices only swayed about 30₵ USD/bushel.
Winter Wheat Prices Rally into 2020
That said, winter wheat prices started 2020 out continuing its rally started in December 2019, finding some healthy gains. More specifically, hard red winter wheat prices in December 2019 gained nearly 40₵ USD/bushel on the board in Kansas City, while soft red winter wheat prices in Chicago rallied only about 15₵ – 20₵. The main reason for this difference in rallies was that hard red winter wheat prices have been grossly undervalued for the past few months. 
From a quarterly perspective though, Kansas City HRW wheat prices and Chicago SRW wheat prices were fairly lockstep, each gaining about 50₵ – 60₵.
Winter Wheat Prices Climb on Smaller 2020 Acres
Part of the reason for the rally is riding the wave created by corn and soybean trading, but the market is mainly starting to focus on what sort of winter wheat harvest 2020 is going to provide. Driving U.S. winter wheat prices is, intuitively, the smaller crop planted in the United States this fall. While we’ll get the official estimate the USDA on Friday, it’s expected that they’ll report 30.664M acres of winter wheat were seeded this autumn on American land. This would be a 1.6% reduction from last year and smallest winter wheat area since 1909 (or 110 years!).
Due to the wet fall, there likely not as much soft red winter wheat planted in the Midwest this year, which might help explain part of the large spread between SRW wheat prices in Chicago and HRW wheat prices in Kansas City. More generally supporting winter wheat prices though is the dry start to the crop, as USDA quality ratings suggest about only half of the 2020 U.S. winter wheat crop is in good-to-excellent condition.
That said, we know that heavy rain in western Europe has reduced the number of acres that got seeded. Notably, the EU’s largest wheat producer, France, saw its fall seeding campaign of winter wheat fall by 5% year-over-year to 11.7M acres. As mentioned about a month ago, across the bloc, Strategie Grain is forecasting a total soft winter wheat harvest in the EU of 142.3 MMT, down more than 2% or 3.2 MMT from the 2019 haul. However, Strategie Grains has now lowered its estimate to 140.5 MMT with total acres down over 2.5%. Through the middle of December, only 60% of the UK’s anticipated winter wheat acres were seeded, while France was 15% behind their usual pace.
That said, you can never count out the Black Sea in the winter wheat game as the region has become a benchmark for others to compare/contrast against. If you disagree, then ask the CME why they developed a Black Sea wheat futures contract.  Further, two and half years ago I already labelled Russia as the new world wheat king.
That said, Ukrainian farmers this fall have planted more winter wheat than what was initially being forecasted – 8% more in fact. While it was initially thought that Ukrainian winter wheat acres would fall almost 10% because of dry conditions during the seeding window, the new total acreage does match the area seeded in fall 2019, and thus, a bit bearish.  Further, Russian winter wheat acres are expected to climb 5% year-over-year to a new record of nearly 45M acres.
Winter Wheat Prices Helped by Strong Exports
As mentioned in my outlook for spring wheat prices, there’s a few tradeflow regions that I’m keeping my eye on but Asia is definitely the major focus. More explicitly, Asia is where there’s likely more business up for grabs as a result of weaker production in Australia, as well as increased export taxes from Argentina.  While we know Asian millers have decent coverage through the end of 1Q2020, I think there’s going to be some opportunity for U.S. and/or Canadian wheat exports to increase to the region, be it to China, Indonesia, or even Vietnam.
The other region that I’m watching is the Middle East, as with Black Sea winter wheat prices started to climb a bit, American winter wheat may start to become more competitive. There’s the obvious major importer, Egypt, which supposedly has good coverage for the next few months. However, with Ukraine and Russia’s wheat exports slowing, there’s a window of opportunity that could be capitalized on.
Sidenote: Turkey has replaced Egypt this year as the largest buyer of Russian wheat.  We also already know that more wheat has been going into Iraq, which has bought about 470,000 MT of U.S. wheat through October 2019, albeit the country’s parliament just voted to expel troops. 
The reason behind the slowdown in wheat exports out of the Black Sea is 1) Ukraine started 2019/20 with a torrid/unsustainable pace of wheat exports and 2) slower farmer selling out of Russia. The latter has helped push up Black Sea winter wheat prices, and thus SRW wheat prices and HRW wheat prices in the U.S.
That said, total U.S. wheat exports are tracking 18% better than this time a year ago, with 13.81 MMT sailed through Week 29. Given the strong pace of U.S. wheat exports, it’s no surprise that the USDA raised their forecast in the December WASDE by 680,000 MT to 26.54 MMT. However, that’s only about 1 MMT, or 4% larger than last year’s U.S. total wheat exports of 25.48 MMT. Therein, the USDA must be expecting more competition in the second half of the 2019/20 marketing season, or else they would’ve bumped things up more.
Winter Wheat Prices Possibilities in 2020
As mentioned, winter wheat prices have flipped the calendar into 2020 with a bullish nature about it. That said, the usual winter headlines about crop-killing cold weather will certainly materialize and that’ll help a little winter wheat prices a little. However, wheat is weed: its survivability is unparalleled (apart from maybe some of the next generation weeds we’re seeing!) and a crop will certainly be taken off this year.
I’m expecting winter wheat prices to find a bit more running room thanks to the improved export prospects, but I think the party will end sometime in February, maybe early March. Thereafter, it’s the usual seasonal patterns with weather premiums potentially creeping back into the market in May/June but pulling back again. Thus, if you’re looking to price something out for 2020, the best opportunity to capture these higher winter wheat prices will likely be in the next 6 weeks or so.
Finally, let’s keep in mind that world wheat ending stocks for the 2019/20 crop year are expected to total nearly 290 MMT (including China, that is). This would be a new record and will likely keep any major rallies for winter wheat prices in check, so manage risk accordingly!
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