Are Wheat Markets Ready to Rock and Roll?
Through this past weekend, America HRS and durum wheat planting is still a bit behind their seasonal averages, and albeit the planting pace picked up last week, progress is widely variable depending where you farm in the Northern Plains. This was compounded towards the end of last week as some parts of Montana and North Dakota got hit with some snow. Some parts of the Canada Prairies were also hit by another round of the white stuff albeit it’s a bit early to say if any significant damage has been made.
All things being equal, it’s hard to find any areas of drought anywhere in the United States. In their May WASDE report, the USDA said that total wheat production in the U.S. would total nearly 1.9 billion bushels, which would be a slight bump from last year’s 1.884 billion bushels. Through Monday, May 20th, the percentage of the U.S. winter wheat crop rated good-to-excellent (G/E) was pegged at 66%, up 2 points week-over-week. While this is still well above the 36% G/E rating seen at this time a year ago, the heavy rains in the Southern Plains were a catalyst for winter wheat prices last week! The delay to spring wheat seeding also helped futures prices in Minneapolis rally.
There is mostly dry weather in the forecast for the U.S. Northern Plains and southern areas of the Canadian Prairies, although rain could show up again next weekend. Conditions in Western Canada are solid though, and that’s why the USDA pegged total wheat production in the Great White North at 34.5 MMT, a 2.7 MMT jump year-over-year (AgCanada’s estimate for total wheat output is slightly lower at 33.85 MMT).
The USDA’s production expectations are high elsewhere too! This includes the EU (+16.6 MMT from last year’s crop to 153.8 MMT in 2019/20), Russia (+5.7 MMT to 77 MMT), Ukraine (+4 MMT to 29 MMT), Argentina (+500,000 MT to 20 MMT), and Australia (+5.2 MMT to 22.5 MMT). For Australia though, we continue to see drought conditions appear for the third straight year. Thanks to the dryness, Australia is importing wheat for the first time in a dozen years, and the supply is coming from Canada who is a very logical option for high-protein wheat.
On that note, Canadian non-durum wheat exports continue to perform brilliantly, as 14.25 MMT have been shipped out. This is good for 14% better than this time a year ago, and with less than 3 months to go in the marketing year. Canadian durum exports have also picked up lately, now tracking nearly 9% above last year’s pace. While shipments slowed down last week, it’s now likely that we’ll now hit Agriculture Canada’s full 2018/19 crop year target of 4.2 MMT.
Coming back to the Prairies, in Manitoba, spring wheat seeding is nearing completion, but cool conditions are slowing emergence. Further, Saskatchewan and Alberta are trending drier, as rainfall has been spotty in the two provinces. Much of the Wild Rose province getting less than 1.25 inches since the beginning of April! On that note, over half of the Alberta spring wheat crop was in the ground as of this time a week ago.From a cash price standpoint, the website PDQInfo shows the significant decline in spot CWRS wheat prices across Western Canada. Most of that decline though has been a result of a futures values declining.
If we’re looking at new crop wheat prices across Western Canada, indeed cash values have dropped considerably compared to this time a year ago. Conversely, basis levels have appreciated, especially for CPS wheat as the table below shows. The state of Canadian wheat exports has certainly helped with this relatively stronger basis. That being said, with the amount of wheat set to come off this year around the world, that basis level looks pretty attractive, and if you haven’t contracted up to 40% - 50% of your expected 2019/20 production, I’d urge you to consider a basis deal. Further food for thought: some of the weather premium being accumulated by wheat prices on the futures board will soon force basis to widen. Thus, the time to lock up new crop wheat basis is now.
President & CEO | FarmLead.com