Spring Wheat Basis Supported by Global Factors
Last week, Japan lifted its ban of importing Canadian wheat and immediately jumped into the market looking for 63,000 MT of 13.5% protein spring wheat. We had previously suggested that it could take up to three months before Japan ended its break-up with Canadian spring wheat.
Is it coincidental that the announcement came not long after 80 square miles of spring wheat were torched in wildfires in Oregon? That Oregon wheat was about two weeks away from harvest, and that primarily soft white wheat, usually ends up in Japan, South Korea and other Asian markets.
A little more inland, the hard red spring wheat crop tour is taking place this week. Currently, the USDA suggests that 79% of the US spring wheat crop is rated good-to-excellent. However, we continue to hear field-level reports of poor yield potential.
With that being said, we’ve continued to see some decent spring wheat basis values in Western Canada. Manitoba and southern Alberta continue to enjoy the best values.
Looking across the pond to Europe, hot, dry weather continues to weigh on the health of the crop from Spain to the Black Sea. Over the next two weeks, this heat isn’t expected to cool off.
For example, this week, the USDA said that warm weather has affected the Bulgarian wheat crop. Wheat yields are well below last year’s record levels. The latest harvest data shows yields at 67.5 bushels per acre, down 9% compared to last year. Total production is for 2018/19 is pegged at 5.7 MMT, a decline of almost 10% from the 6.3 MMT in 2017/18.
In addition, USDA reported that total wheat production in Ukraine for 2018/19 would come in at 25.7 MMT. That figure would be down 1.24 MMT or 5% compared to last year. This downturn is a significant drop year-over-year for a country that is traditionally a grain powerhouse.
On Friday, last week, Agritel reduced its estimate of the French soft wheat crop to 34.2 MMT. That’s a 6.6% decline from last year’s crop. Agritel blamed its downgrade on some of the driest/hottest weather on record in France, as well as heavy rain closer to harvest negatively impacting quality.
Going forward, there could certainly be fireworks for Canadian wheat prices, but it’s likely to come from abroad. As dryness continues to persist across Europe, Russia, Ukraine and Australia, the search for high-protein wheat is not going to slow down. And every forecast and projection out of these countries continues to show a world less awash in wheat than it was before.
While it’s sometimes tough to recognize, the temperature on the other side of the globe is far more important than the mercury dial in your own backyard.
President & CEO | FarmLead.com