2019/20 Competition & Opportunities for Canadian Wheat
Wheat prices had a tough last week, as better growing conditions and U.S., European, and Black Sea winter wheat harvests all put bearish pressure on wheat prices on the futures boards. The net result on cash markets was average spot prices for CPS wheat prices in Western Canada falling 5.7% (or 34¢ CAD/bushel) to $5.57 and HRS wheat prices dropping 3% (or 19¢) to $6.10 for the week. The decline in CPS wheat prices has been especially notable.
As we officially round the corner into the 2019/20 crop year for Canadian wheat, I’d like to look at some different competition and subsequent opportunities, as per recent USDA reports. We’ll start in the Land Down Undaa, which probably is the most competitive (from an international perspective) to wheat produced in Canada. For 2019/20, the USDA is forecasting wheat production to rebound to 21.5 MMT (from 17.9 MMT last year) and exports to climb 3.4 MMT year-over-year to 12.5 MMT. These numbers could drop further as drought conditions continue to stick around most areas, except for Western Australia. The USDA’s Australian attaché notes that, while trading with premium wheat markets like South Korea and Japan has been consistent, higher domestic prices have forced Australian market share of Indonesian wheat to drop significantly. Indonesia is the largest wheat importer in the world at 11.5 MMT (they’ve been flip flopping this title with Egypt lately) and Argentina and Canada have been taking advantage this past year. I would expect that continue in 2019/20 with some increased shipments from the U.S. as well.
In Europe, the wheat harvest is progressing, and numbers are looking pretty good despite the late-June heatwave that hit the continent. The above-average warm weather in the E.U. caused analysts to trim their production expectations in June but now numbers are being revised higher again as combining accelerate. Through July 15, 33% of the French soft wheat crop was in the bin, and while that’s nearly half of the 66% seen a year ago, it is a marked improvement from just 9% combined the previous week.
A little more south in Spain, farmers there saw a dry winter and while spring rains helped northern areas, the moisture came to late for southern areas. As such, total Spanish grain production is expected to fall by 25% from last year’s record harvest. Given Spain’s recent surge in livestock demand for feed, it’s likely that Spain will have to import 17 MMT of feed grains in 2019/20 (another major Canadian opportunity). Spain is also a major durum producer in Europe, but farmers planted 11% less this year, seeding just under 800,000 acres. The average production forecast from 5 analysts in the region peg this year’s production at 874,600 MT, which means that it’s likely the country will have to import durum from other E.U. suppliers, or the likes of Kazakhstan, Canada, or the U.S.
Finally, in the Middle East, smaller acreage and bigger demand for wheat products in Turkey continues to drive higher wheat imports by the politically-troubled country. Despite an expected production of 16.25 MMT of soft wheat and 1.5 MMT of durum wheat, the USDA is expecting Turkey to import 7 MMT, up nearly 10% year-over-year. Last year, Russia accounted for about 75% of total Turkish wheat imports (including 106,000 MT of durum) while Canada shipped over 520,000 MT, half of which was durum. When import demand is up, this is usually a function of local production not meeting the needs of locals, and when that happens prices increase. This has certainly happened in Turkey, especially for durum, as durum prices are literally 70% higher year-over-year at an equivalent of $450 CAD/MT (as shown in the chart below, average spot cash durum prices in Western Canada are hovering around $247 CAD/MT. Given the price point and higher demand, it’s a strong possibility for Canada to get some more durum business with Turkey.
Looking domestically, rains over the past month have certainly hurt wheat prices in Western Canada, I’m expecting this decline to continue for possibly another 3 weeks before starting to settle and then eventually (but slowly) start ticking higher in late September (as mentioned inlast week’s Wheat Market Insider!).
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