A June Divergence of Wheat Prices
Ahead of the June WASDE report, out on Tuesday, June 12th, Minneapolis hard red spring wheat was the only grain that made any significant gains for the first full trading week of June. One of the reasons behind those gains is there continues to be strong demand for high protein and, as mentioned in last week’s column, Australia likely won’t be able to help supply it for the third straight year.
The second major reason for the increase in spring wheat prices is that it’s also getting dry in major spring wheat growing areas of North America, namely Western Canada and the northern parts of Montana, North Dakota, and Minnesota. Most of the Canadian Prairies have “received less than 60% of normal precipitation over the past six months” according to Agriculture Canada’s drought monitor. That being said, the first weekend of June saw Alberta and parts of Manitoba receive some rain. Although Saskatchewan has some precipitation in the forecast for this week, the province has yet to see many of such predictions materialize.
Keep in mind that the USDA will NOT be acknowledging the rains that Western Canada in their June WASDE report as most of these numbers are baked in a few weeks before their publication. While most of the focus of the report will be on U.S. yield and production numbers, I’m keeping an eye on corn demand, as, with higher American corn prices, there’s likely to be some substitution effects in the domestic feed market, and wheat will likely being the benefactor. I’m also expecting a downgrade in wheat production in Canada, Australia, and Russia, as these areas are all experiencing varying levels of drought.
However, the winter wheat harvest is starting to roll in the U.S., as well as in the Black Sea. As such, there have been some suggestions that the highs of the winter wheat market are in! We’ve seen CPS wheat prices in Western Canada track the rallies, and cash values for spot movement are sitting not far from their own highs established recently.
While hard red spring wheat prices continue to climb, and winter wheat prices have dipped a bit, durum prices have been stagnant. The market has certainly acknowledged that are less acres in the U.S., Canada, and Europe, but demand continues to be a question mark and that’s why durum prices have barely moved. This goes for new crop durum prices too, as in most places, there hasn’t been much change in the past 3 months and even deferred options aren’t paying a premium.
Finally, while China hasn’t liked Canadian canola, it is liking Canadian wheat. Through April, China has purchased 1.5 MMT of wheat in the 2018/19 crop year from Canada, double last year’s volume through the same time frame and the most in almost 15 years. The main factor here is that the trade spat with the U.S. has opened the door for more Canadian shipments and it’s expected to stay open until Washington and Beijing find a collective solution to their spat. Complicating things for U.S. wheat trade is the recent finding of some GMO wheat in Washington. If history repeats itself, we know that some international buyers (namely Asian countries) will turn away from U.S. wheat until their concerns satisfied, thus opening the door a little wider for a few weeks for Canadian wheat exports.
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