Cash Wheat Prices Earning Quality Rally
As rain and snow continue to keep Harvest 2019 at bay, quality premiums have started to creep into the market, especially for hard red spring and durum crops. Before digging into cash activity in Western Canada, wheat’s three futures markets were mixed last week on mostly technical positioning. Limited U.S. export activity also kept pressure on HRS and HRW wheat futures. That said, late last week, the USDA confirmed a sale of 130,000 MT of American white wheat to China, which is a good omen ahead of trade negotiations between Beijing and Washington.
Elsewhere in the world, there’s some buzz that the Argentine wheat harvest could come in as low as 17 MMT, well below the initial forecasts of 20 – 21 MMT. The sharp reduction is the result of freezing conditions, which has now been followed by dryness. On the other side of the world, the planting pace of winter wheat in France has been completely stopped by wet weather. Further east, 48% of Ukraine’s winter wheat crop has been seeded so far (8.69M acres) while Russia has planted 77% of their area (25.4M acres).
With the cordial information out of the way, you probably want this question answered: “Should I lock my bins?” This is being intuitively prompted by the tough weather conditions from Mother Nature, who has made this growing season one of the most difficult that many can remember. Accordingly, I’m seeing a lot more chatter on social media calling for durum prices at $20 CAD/bushel and hard red spring wheat in the double digits as well.
Looking at the actual numbers today, durum prices are performing the best (compared to a year ago) as they’re up nearly $2 CAD/bushel in some areas. I think that durum prices have further room to run as cash bid sheets are quite volatile: as values jump, farmers sell some, and the bids pull back a bit. This game will likely take place for a few more weeks but I’m very cognizant of the carryover from last year available in both the U.S. and Canada. That’s why I can’t agree that prices are going to see the values we saw in the fall of 2014. Instead, you should be thinking about selling into strength the closer we get to the beginning of November.
On the spring wheat market, there’s plenty of CPS wheat out there that’s of decent quality and so cash values are following futures markets more than they are quality indicators like durum. On the flipside, hard red spring wheat cash prices are also volatile, like durum, albeit not as extreme. Values are still below last year’s, but as nearly half of North America’s hard red spring wheat crop of 2019 remains out in the field, I expect prices to continue to trend higher. Just looking at the chart below helps confirm this theory, with prices usually topping out around late November / early December.
Looking more regionally, Alberta is the leader for CPS and HRS wheat prices on the cash market, while eastern Saskatchewan and western Manitoba are leading the market for durum prices. This is likely a function of being closer to U.S. millers who are embattled with finding good quality amongst growers across North Dakota and Montana.
With combines just sitting in a field or yard collecting snow or water, it’s hard not to feel this way, but here’s the hard fact: the market doesn’t care about your emotions. The market knows that there is a lot of decent quality still out there from Harvest 2018 and even Harvest 2017 in the case of the durum market. To be clear, low carryover and variable quality from Harvest 2014 helped wheat prices climb. Remembering that year, different buyers would return you different quality metrics, so having a few spec sheets to average out became the best strategy. And as the Alberta Wheat Commission has recently mentioned, Falling Number has become one of the more consistent contract factors, so ensure you’re getting that tested too!
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