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Wheat Prices 'Bounce Around' as Harvest Gets Underway by Matthew Weaver Capital Press, July 15, 2017

Heat in the Northern Plains will continue to push dark northern spring prices upwards, as long as grain
merchandisers struggle to find supplies. Pacific Northwest farmers hope soft white wheat prices will follow suit.

MILTON-FREEWATER, Ore. -- Farmer Nathan Rea stood in his field of dark northern spring wheat, slated for harvest later in July.

Prices for the wheat class have taken off in recent weeks, in response to hot and dry weather in Montana, South Dakota and North Dakota.

"Unfortunately for them," Rea said. "The positive side is we're getting a much-needed increase in the price of wheat. The DNS price is helping to pull up some of the others. We're hopeful soft white will get some legs here."

On the Portland market, DNS ranged from $7.93 to $9.53 per bushel last week, depending on protein content. Soft white wheat ranged from $5.21 to $5.45 per bushel. Both are up more than 20 percent this year.

But futures prices trended lower last week compared to the previous week, according to USDA. Chicago wheat futures were 27.25 cents lower at $5.12 per bushel, Kansas City wheat futures were 31 cents lower at $5.16 per bushel and Minneapolis wheat futures were 19.5 cents lower at $7.50 per bushel.

"We're going to see this thing bounce around," said Dan Steiner, grain merchandiser for Morrow County Grain Growers in Boardman, Ore. He said Minneapolis numbers are "rock-solid" because of high demand and crop problems in the region.

Since the end of May, grain speculators have bought 805 million bushels of Chicago wheat futures, Steiner said. They're now 235 million bushels long -- owning more than they need to sell -- the biggest long position in three years. Speculators on the Kansas City market are long 362 million bushels, the biggest long position in more than a decade, Steiner said.

"If they're long and the price goes up, they make money," he said. "If they're long and the price goes down, ooh, sad faces."

Steiner expects a lot of movement in the market.

"It's going to take time to work this through the system," he said. "The speculators came in and went from a reasonable short position to very large long positions as far as Chicago and Kansas City are concerned. There's going to have to be some unwinding from this rally."

Soft white wheat prices still need to go higher to cover farmers' cost of production, Rea, the farmer, said. He'd like to see well above $5 per bushel locally, and ideally $6 per bushel, noting that it costs farmers to ship their wheat from rural grain elevators to Portland for export to overseas markets. It costs about 60 cents a bushel to transport wheat to export facilities.

"This is much better than where we've been," Rea said. "We're going to have high yields this year, but the price has just been killing us. People talk about knowing your cost of production and not selling for anything below that, but that's not been possible the last couple of years."

It's unclear what the final losses will be in Montana and the Dakotas. Other possible problem spots include competing wheat-producing regions in the Canadian Prairies and Australia, Steiner said.

"It's a slow developing picture," Steiner said. "That's one of the problems with a drought. It's not like a tornado or hailstorm that comes whipping through and you know the results as soon as the sun comes back out."

Australian wheat production is expected to be down 30 percent from last year, from 33.5 million metric tons to 23.5 million metric tons, which will also affect soft white wheat prices, Steiner said.

Soft white wheat will likely maintain its value, Steiner said.

Hot and dry conditions will continue in the Northern Plains and Canadian Prairies, further impacting the DNS crop.

"It's going to be tight -- we're going to see a small crop, no doubt about it," said Darin Newsom, senior analyst for DTN in Omaha, Neb. "The market still looks like it wants to go higher. We haven't found that price level yet where buying just shuts off."

As long as grain merchandisers are struggling to find supplies, higher prices could continue, Newsom said.

Grain speculators are driving the market right now, Steiner said. He recommends farmers sell at least some of their wheat when prices are in the high $5 per bushel range and holding it when prices get lower.

"In today's environment, you're probably going to be able to get somewhere between $5.50 to $5.70 without too much trouble," Steiner said.