Continuous Wheat Price Pressures
Grain markets continue to shift lower as harvest pressures – namely better-than-expected yields – and a stronger Canadian Dollar put pressure on cash prices. This past week the USDA came out with their monthly world agricultural supply and demand estimates. Most of the market was expecting yield and production downgrades in the US but the USDA were more bearish and actually raised numbers. Specifically, for US corn, the market was expecting 168.2 bushels per acre, but the USDA said they are expecting 169.9. For US soybeans, the market was expecting 48.8 bushels per acre but the USDA challenged that as well, lifting their estimate to 49.9 bushels per acre. These are the 3rd-and 2nd-largest yields respectively in the US.
With these sort of bearish numbers, the market immediately dropped before rebounding a bit over the subsequent days. From a cash grain standpoint for Western Canada, prices continue to pull back tough. For canola, prices have been resilient, thanks to some bullish factors like lower yields, production, and ending stocks. What is interesting though is that 2018/19 crop prices have started to tick up and are getting closer to that $11 / bushel handle in a lot of places. Yellow peas continue to trade close to that $8 CAD / bushel handle. Given available supply here in Canada as well as internationally, prices have been trading sideways.
In the past month, 2017/18 hard red spring wheat prices have lost an average of about 7% across Western Canada. Durum wheat has performed even worse, losing an average of 13.5% on the cash price front. We think that there are some better opportunities to price out wheat down the road, but this will include protein and other quality premiums. We continue to recommend that farmers order their independent grain tests from GrainTests.com.
Coming back to the September WASDE report, the USDA raised US spring wheat by 15 million bushels on less exports and domestic use. Total 2017/18 carryout for US hard red spring wheat is now pegged at 146 million bushels (or slightly less than 4 million tonnes if you’re using GrainUnitConverter.com) For durum, US ending stocks for 2017/18 were also raised by 2 million bushels to a total of 24 million bushels (or 653,000 MT). The reason for the increase was imports were raised. The only logical place those imports are coming from are Canada. If you’re planning to take advantage of it, again I recommend you get your wheat tested for US grades as well.
Speaking of Canadian wheat, the USDA kept their total production estimate at 26.5 million tonnes, which is about 1 million tonnes above most of the private market and StatsCan’s recent estimate from August 31st. The USDA did drop Australian production by 1 million to 22.5 million tonnes, but that’s still high compared to ABARES and other private estimates mentioned in yesterday’s Breakfast Brief. However, they also increased Russian wheat production by 3.5 million tonnes to 81 million, in line with most other forecasts. This puts total global wheat production for 2017/18 at nearly 745 million tonnes. It also keeps global carryout at a record 263 million tonnes (technically this number was lowered by 1.5 million tonnes so that’s working for us).
Overall, sure there’s a lot of wheat out there in the world but not necessarily a bunch of the highest quality. As such, while posted prices may not be great, we expect them to improve, especially when you start to consider quality premiums.
President & CEO | FarmLead.com