Two Stories of Wheat Prices: Old vs New Crop
Wheat prices continue to be supported by some of the colder North American weather and the dwindling exportable supplies in the Black Sea. This a result of a certainly smaller 2018/19 wheat output in these countries, notably Russian wheat production down 15% and Ukraine’s wheat harvest down 7% year-over-year. Add in Australian production dropping 22% from 2017/18 and the EU wheat harvest decreasing 9% year-over-year, and there is some bullish buzz for wheat prices!
Supporting the buzz for stronger wheat prices was a rumour last week that China was interested in buying up to 7 MMT of American wheat. While it was welcomed news and it helped hard red spring wheat prices a bit, the buzz lost some strength when it was announced that only an unknown buyer purchased just 40,000 MT of U.S. hard red spring wheat for the destination of China.
While the rumours of U.S. wheat exports has helped wheat prices a bit, it was Agriculture Canada’s updated crop estimates on Friday that caught my attention. In it, AAFC raised its estimate for 2018/19 Canadian wheat exports to 18.7 MMT, up 200,000 MT from their previous report and 7% above 2017/18’s shipments.
This number is precariously close to a new record, something that I think is possible, considering that through Week 25, Canadian wheat exports have nearly reached 8.9 MMT. This is almost 20% higher compared to the same time a year ago.
The AAFC also raised their expectations for 2018/19 wheat prices by $5 CAD / MT to average of $230 CAD / MT (or $6.80 CAD per bushel). Keep in mind though that this includes winter wheat prices.
Worth also mentioning from Ag Canada’s estimates is that the government agency expects Canadian farmers to seed 20.4 million acres of non-durum wheat in 2019/20. This would be a 9% jump over 2018/19’s acreage and 11% above the 5-year average. From those acres, and average yields of a little more than 52 bushels per acre, the 2019/20 Canadian wheat harvest will top 28.1 MMT. This would be 8% higher than 2018/19 and 15% above the five-year average!
With the bigger crop, wheat ending stocks in the Great Wheat North will push from the 4.2 MMT they’re estimated to close 2018/19 at, up to 5.5 MMT for 2019/20 carryout.
For durum, Agriculture Canada is forecasting that seeded acreage by Canadian farmers will drop 25% from last year’s 6.185 million acres to 4.646 million planted for the 2018/19 harvest. With an average yield of 39.55 bushels per acre, AAFC is forecasting total Canadian durum production at 4.9 MMT, down 15% from 2018/19’s durum harvest. Agriculture Canada has some optimism that durum exports will pick back up, forecasting 4.5 MMT for the crop year. Net-net, should help push ending stocks lower, from the 2 MMT forecasted to end the current crop year with, down to 1.5 MMT.
Ultimately, one of the conclusions that can easily be made is that today’s non-durum wheat prices likely won’t be available a year from now, especially when all the aforementioned countries who saw lower wheat production in 2018/19 are planting more wheat in 2019/20. Conversely, we likely also won’t see today’s durum prices a year from not if AAFC’s durum acres estimate materializes.
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