Minnesota Farm Guide: Leading Farm Newspaper

When harvest begins the various commodity markets typically enter into a period of volatility as new crop comes into play. Such is the case with spring wheat as combines begin rolling across the prairies.

But this year, there are also many stories being written on the 2008 harvest with a lot of divergent opinions about what the final size and quality of the U.S. crop will be, according to Jim Peterson, marketing director for the North Dakota Wheat Commission.

“Some are on the side of the fence that feels there is excellent crop potential in eastern North Dakota, western Minnesota and much of South Dakota, and that that will be enough to outweigh the significant crop problems in many areas of the west,” Peterson said.

“Others, however, are citing that it will not be enough and that there's enough spotty crop problems in the central part of our region that USDA will have to lower its final average yield forecast which will be out on Aug. 12.”

Prior to that report coming out there have been a couple pre-report surveys that the market is looking at to analyze crop size. USDA projected a 470 million bushel hard red spring wheat crop in July, which compares to 449 million in 2007. The July forecast was based on higher planted area but a slightly lower yield compared to 2007, , Peterson said. USDA's July estimate had a yield of 36.8 bushels per acre versus 37 bushels per acre in 2007.

“The bias of a lot in the trade is that yield will go higher in August,” he said. “The average trade guess is for 475 million bushels in production versus the 470 million forecast by USDA in July.”

“What's also important is the range,” he added. “Some have production as low as 450 million bushels and some as high as 500 million.”

Another survey considered by the market is the annual Wheat Quality Council Tour which took place the last week of July.

The primary focus of the tour is to look at harvest dates to determine when mills can expect new crop to come in and to see what quality may be like. Tour participants also come up with an average yield based on fields they've looked at.

The tour saw fields in North Dakota, South Dakota and Minnesota.

“The tour stopped at 346 fields and the average yield for spring wheat was 37.7 bushels per acre versus 37.3 in 2007,” he said. “The general average opinion is that the eastern crop will be enough to offset some of the problems we're facing in the west. But the final truth will come out in the combine.”

As of Aug. 3 only 6 percent of the U.S. spring wheat crop was harvested. Usually 20 percent of the crop has been harvested by this time.

Delays are more significant in South Dakota where just 10 percent is harvested compared to an average of 60 percent, and in Minnesota where only 2 percent is harvested compared to a 15 percent average. North Dakota's crop is 5 percent harvested versus a 15 percent average. Montana is closer to average with 10 percent harvested compared to a 13 percent average.

“Reports from initial harvests out west are disappointing,” Peterson said. “A large number of crops that looked good stand-wise have smaller kernels and yields are affected because more wheat is being blown out of the combine, or the heads just did not fill completely. Reports are largely in the 10-20 bushel per acre range, although some areas are reporting better crops with yields near their long-term average.

“A quality issue of concern in the west is that there are some light test weights with a lot of low to mid 50s,” he added. “That's probably going to be the worst stands, the most drought stressed. As we get further in to harvest test weights should improve and that will be watched closely by the trade.”

On the other hand, some of the early harvest reports in eastern locations are reporting yields of 70 bushels plus for winter wheat. “And a lot of those guys are expecting 50-60 bushels on spring wheat,” Peterson said. “But we're a week away from the heart of harvest over there (in the east). There's a lot of information to be written yet about the 2008 crop.”

Peterson noted the market has been very volatile with the onset of harvest with a 50-75 cent per bushel trading range on all of the wheat futures, from near limit up one day to a 20-30 cent per bushel decline the following day.

That's due in part to having very little carryover and less cushion to work with, and also because of slower than expected harvest dates and the divergent opinions on the crop.

“What we produce in 2008 will be the bulk of what manufacturers will have to work with,” Peterson said.

Contrasting the drought situation in the west is the fact that the world crop is record large and the U.S. winter wheat crop is better than expected in a lot of areas. There are questions about what the final Australian and Canadian crop numbers will be.

“Right now the bias is they will be bigger than thought earlier,” he said.

“The market wants to be bearish because of those factors and producers are expected to be tight holders of their crop because of what happened last year with the post harvest rally,” Peterson said.

As of Aug. 8, local cash prices for HRSW were $8.15 to $8.75 with an average of $8.50. That's about a $2.50-$3 premium over last year,'s price in a lot of locations.

“Buyers are waiting for a further break in the market, especially for spring wheat,” he said. The question is, in areas of good crop, will producers be selling their inventory?”

Until we get further into harvest, that's a big unknown. We do know that input costs have skyrocketed and producers need more from this year's crop to pay the bills.” Peterson said uncertainty of protein content could mean wider protein spreads, most notably discounts for HRSW that's less than 13 percent protein,” he said. This uncertainty makes it difficult to lock in many cash sales without a known discount scale.

“One bullish factor in the world market is that Russia and Ukraine have harvested big crops but have quality issues and low protein and more will go into feed channels,” he said. “That does tighten the export picture a little.”

Currently, the U.S. export pace is better than expected for hard red and soft red winter wheats. HRWW is at 230 million bushels or 52 percent of USDA's estimate for the year, while SRWW is at 106 million over 70 percent of USDA's estimate. HRSW, on the other hand, is only at 74 million, which is only 30 percent of USDA's goal.

“Canada has a larger crop and we'll face more competition from that end,” Peterson said. “Hopefully we'll harvest a high quality crop to remain as competitive as we can and capture more HRSW exports in the coming weeks.”