Spring wheat prices – three main drivers
The past year has brought substantial upward momentum to spring wheat prices. A year ago, at planting time, spring wheat futures were trading at around $7, this year futures are around $11.50 or higher. Unfortunately, significantly higher input costs have taken away some of the profitability for producers. Fertilizer prices have more than doubled and fuel prices have increased 60-70 percent from a year ago. Despite the challenge of higher input costs, producers are optimistic about 2022 pricing prospects and hopeful for better growing conditions.
What is driving wheat prices?
Lower production in 2021
Spring wheat prices started gaining momentum shortly after planting last year as it became obvious that a severe drought situation would greatly impact production and available supplies. As it turns out, yields in last year’s crop were drastically lower and production in the U.S. dropped a staggering 44 percent. Canadian spring wheat producers experienced the same growing conditions, and production there dropped by almost 40 percent. The U.S. and Canada produce the majority of the spring wheat in the world, prized for its high protein and end-use quality, and the reduction in production and available supplies rattled the markets and pushed prices to near record premiums over other classes of wheat.
Russia’s invasion of Ukraine
While the drought sustained price momentum for a few months, prices were further supported when tensions grew, and Russia eventually invaded Ukraine. Combined, Russia and Ukraine account for 13-15% of world wheat production and 28-30% of world wheat exports. The war has caused great uncertainty about world wheat supplies and availability. While Russia continues to export, Ukrainian exports are very limited, and it is now questionable how much of their 2022 crop will get planted and harvested. U.S. spring wheat doesn’t compete directly with Black Sea wheat, which is primarily exported to the Middle East and Africa, but the potential removal of a large portion of exportable wheat supplies is concerning to the market as a whole. Importing countries have been sourcing wheat from other origins including Europe and India, but the long-term implications are still to be determined.
Recently, spring wheat prices have been suppored by delayed planting. While a very small percentage of the spring wheat was planted in early April, significant snowfall, cold temperatures, rainfall and flooding have delayed any further progress, especially in North Dakota and Minnesota. Most producers indicate they are at least 10-14 days away from getting into fields. And that’s only if the weather cooperates. The delay in planting could impact crop choices, with weather and planting conditions a more important factor in final crop decisions, as compared to market conditions in early March. Spring wheat acres in the U.S. were projected to decline two percent this year, a concern to the market given the already short supplies. Also, a later planting date can adversely affect yield potential. The next couple of weeks will be important. The market, and our traditional spring wheat customers are counting on higher spring wheat production this year. If temperatures warm and fields dry out, producers will hopefully get into fields and plant their crops in a short amount of time, but weather is unpredictable, and things could go the opposite direction.
Producers have had a tough spring already, with weather issues and rising input costs. Hopefully prices can keep pace to help alleviate some of these challenges. However, market volatility is expected with the ongoing situation in Ukraine and weather uncertainty.