Competing Weather, Quality, and Exports
Wheat markets went into the Canadian Thanksgiving weekend on a high as the complex started to price in the impact of some early winter weather hitting major spring wheat production acres. The impact on quality has been talked about in this column and many others for the past few weeks, but now the issue is coming to a head with the snow. The white stuff fell across the Canadian Prairies and Northern Plains, highlighted by a blizzard hitting the Dakotas, Minnesota, and Manitoba. Through end of trading on Tuesday, October 15th though, some of these gains were given back.
Other than the snow, the last week’s worth of trading was highlighted by the October WASDE report. While many still question the numbers that the USDA are putting out, it’s the sidelines that most of the market plays within so we’ll need to take them for what we can. Globally, not much was changed on wheat’s balance sheet with production declines in Australia and Canada being offset by gains in the EU. More specifically, the French harvested was recently upgraded by Strategie Grains to 39.7 MMT while the UK’s wheat crop was recently pegged by the government there as 16.3 MMT, or the largest in 4 years. The bottom line here is that there’s still a lot of wheat in the world! For perspective, 10 years ago, worldwide production and ending stocks were about 100 MMT less than what they are today!
One area worth looking a little more at though is the Black Sea, notably Russia. Since their record wheat crop of 2017/18 (85.2 MMT harvested, 41.4 MMT exported), export volumes have been trending lower. In fact, through this past September, SovEcon notes that 2019/20 Russian wheat exports are tracking 10% lower year-over-year at just 11.8 MMT shipped out. The reason behind this, SovEcon posits, is that farmers are holding onto their wheat, longer, but selling barley or other crops when cashflow gets tighter. That said, as domestic wheat prices in Russia start to climb due to a tighter inventory function (and the locking up of the bins, as mentioned), it’s likely that Russia will lose some fringe business in Southeast Asia and Latin America this year to other players, including the United States, Canada, and Argentina.
On that note, through week 18 of American wheat’s crop year, total wheat shipments (of all types) of 8.93 MMT is tracking nearly one-third better than the same time a year ago. Comparably, Canadian non-durum wheat exports through Week 9 are tracking about 12% behind the same point a year ago with 2.78 MMT shipped out.
Overall, the wheat complex continues to sort through the quality that’s so far been combined, while also estimating what sort of quality might come off once farmers can get back into the field. There’s certainly some better opportunities in the cash market than we seen in recent months so I’ll continue to re-iterate: get you wheat tested. After knowing your cost of production, knowing your quality – especially in a year like this one – will be the most important thing when it comes to your grain marketing plan.
President & CEO | FarmLead.com