Grain markets pushed into February on the downtrend after reaching new highs the week before on continued weather concerns out of South America. Wheat markets continue to trade sideways on plenty of supplies but it is worth noting that Russia likely will not be producing as much in 2017/18 according to IKAR, who is estimating a 67.5 million-tonne crop versus 2016/17’s 73.3 million-tonne monster (for the record though, they expect Russia wheat exports to stay flat at 28 million tonnes). Staying in the Black Sea, the war of words between Ukraine and Russia on the political front is boiling over into physical action (unfortunately), giving way to thoughts of spring 2014 when Russia annexed Crimea and wheat prices climbed $1.50 United States (U.S.) dollars per bushel (bu) on the futures boards on concerns of wheat shipment disruption. However, movement was not really disrupted and I would expect that to be the same in 2017. Any wheat rally should not be challenged, but taken advantage of to sell on the rumor and profit on the fact (one of key grain marketing themes here at FarmLead).
With demand switching to South America, at least America’s wheat exports are still faring well, up 30 per cent year-over-year compared to Canadian wheat shipments down about 21 per cent, compared to this time a year ago. Logistics and currency are taking the brunt of the blame for the difference but the delayed harvest in Canada and concerns about quality created room for other countries (i.e. the U.S., Black Sea, and/or European Union (E.U.) options). On the competition front, on the heels of a record 11 million tonnes, Australian barley exports are expected to explode this year as the United States Department of Agriculture’s (USDA) ambassador in the land down under expects 7.4 million tonnes to be shipped off of Aussie shores, an increase of 37 per cent from last year and the largest in the last 50+ years. Further, it sounds like more of the crop is making malt quality, putting it in direct competition with Canadian and American options, which are seeing prices stagnate in the high $4s CAD/bushel and high $2s USD/bushel in each respective country.
From a cash grain perceptive, prices in Western Canada have improved over the last two weeks for oilseeds, but have dropped for wheat as the supply factor continues to outweigh demand. Hard red spring wheat prices continue to fluctuate around that mid $6 CAD/bushel level while Canada Praire Spring (CPS) values and durum wheat values remain below $5 CAD/bushel and $8 CAD/ bushel, respectively in a lot of places. Yellow peas continue to surprise with $8 CAD/bushel available for both old and new crop, while lentil prices have been pulling back as we get closer to the Indian rabi harvest starting up. Canola prices across the Canadian Prairies have given $11 CAD/bushel opportunities back to those who missed in the first few times thanks to South American weather concerns and strong Canadian crush and export demand.
On that note, as per Statistics Canada’s stocks report in early February, canola stocks as of December 31, 2016 dipped 9.6 per cent year-over-year to their lowest level in the last four years to 12.16 million tonnes (still up from seven per cent from the five-year average though). Conversely, total wheat stocks grew nearly 17 per cent from December 2015 to more than 25 million tonnes, while barley stocks were up nearly 12 per cent year-over-year and 11 per cent from the five-year average, suggesting more feed grains available in Western Canada (helps explain lower prices). Some of the other notable numbers came from durum (+63 per cent over last year to 6.9 million tonnes), rye (+93 per cent to 278,000) , flax (-21 per cent from December 2015 to 595,000), and lentils (+49 per cent to 1.76 million tonnes).
Meanwhile, in its first forecast of the 2017/18 crop year, Agriculture and Agri-Food Canada (AAFC) is expecting wheat production in Canada to hit 29 million tonnes, technically down 2.6 million tonnes from last year’s surprise, but still the fourth largest crop in the past 20 years. The biggest hit will be seen in durum though with production dropping 25 per cent to 5.8 million tonnes as acreage is expected to fall 15 per cent, whereas spring wheat acres are expected to bump up to six per cent. While we all know soybean acres will be up (meaning another record year of production), oats acres are also expected to be higher thanks to higher prices and decent movement. Canola will be the big one to watch though as the AAFC is expecting 21 million acres to get seeded, meaning a record crop is very possible. While demand has been strong, expectations are that at least two million tonnes will be carried forward by the end of the 2017/18 crop, and with increased competition from increased palm oil and soy oil supplies, it will be very challenging for today’s values to be seen in six to nine months.