Market Insider

Bullish All the Way Into 2022?

It would be hard for anyone to argue that grain markets had a pretty good start to 2021, with almost all crop prices higher than where they finished 2020. Naturally, there’s a lot of buzz about how little grain is left in the bin and/or uncontracted – namely canola, soybeans, and corn - which should propel prices even higher. Specific to wheat though, while there is a lot to go around, the price support continues to come from weather concerns and export restrictions out of the Black Sea, namely Russia.

On the weather front, heavy rains in South America are coming at the wrong time as farmers in Brazil try to get their harvest off after a fairly dry growing season. The weather-related soybean harvest delays also mean a delayed start to the Brazilian safrinha second corn crop, which gets planted right after soybeans are taken off. Here in North America, the U.S. southern plains may get some precipitation in the coming weeks, but there’s less in the forecast for the Northern Plains (MT, ND, SD, and MN), which is also supporting wheat prices.

Coming back to Russia, the Kremlin has confirmed that they’re doubling their export tax to €50/MT ($60 USD and $77 CAD/MT or $1.65 USD and $2.10 CAD/bu) from March through the end of June 2021 as they work to ensure domestic food security and stabilize prices. However, given that Russia is the #1 wheat exporter in the world, their government pricing them out of the international market means that global wheat prices should theoretically rise (just like they did almost a decade ago). The higher wheat prices create some significant geopolitical imbalances, especially in the Middle East as bread shortages led to the Arab Spring uprising.

While the export taxes on Russian wheat will only last a few months, this means the other major global wheat exporters – Canada, United States, Europe, Australia, Ukraine, and Argentina – will battle it out to fill the void. However, Ukraine and Argentina had smaller-than-expected harvests so the other four players are likely to capture the demand usually filled by Black Sea wheat. In that vein, the European Commission just increased its wheat export forecast by 2 MMT to 26 MMT (the USDA’s estimate is currently 26.5 MMT).

Similarly, Agriculture Canada, in their January 2021 forecast, their export expectations for non-durum wheat by 1.35 MMT to a new record of 21 MMT, and slightly increased their durum shipment expectations by 80,000 MT to 5.4 MMT, also a new record. Given the increased international demand, the AAFC dropped their estimate for domestic demand (i.e. feed, food, & industrial uses) of both durum and non-durum wheat going into the feed column by nearly a combined 1 MMT.

Looking beyond this crop year, AAFC’s expectations for the 2021/22 crop year are that Canadian farmers will produce 4.4% less non-durum wheat (or 1.26 MMT), and 4.2% less durum (273,000 MT). With the smaller crop, they are estimating that exports will drop to 20 MMT for non-durum wheat and 5 MMT for durum. Therein, with a strong export forecast for non-durum wheat, inventories by the end of the 2021/22 crop year are expected to drop to 5 MMT.

Granted, this forecast is the first from Agriculture Canada, and I think that, based on export disruptions elsewhere in the world, both these carryout numbers could drop further. My estimate is based on the potential for 2020/21 carryout potentially coming in lower than what is currently being estimated. Basically, given the increased demand we’ve seen so far in 2020/21, it’s likely to spill over into the 2021/22 crop year a bit. Accordingly, given the volatility in the markets, our new feature on 
Combyne, Target Offers, is being leveraged by farmers across Alberta to set a target price with up to 10 of their preferred buyers, even if said buyer(s) aren’t using Combyne!

To growth,

Brennan Turner
President & CEO |