Food Staples Demand Help Wheat Rebound
Wheat markets continue to be the leader in grain markets as investors flee to more less volatile asset classes (i.e. agriculture) and recognize the increased demand for food staples. This is especially true for wheat as it has a wide varied of coveted by-products like flour, bread, crackers, and pasta. The move also confirms my timestamped call from last week that wheat prices were poised to rebound.
That said, just like there was an overreaction to the downside, I am cautious of the rally in wheat prices going too far and so you should be thinking about selling into strength in 10% increments here. Besides wheat prices potentially overcorrecting, the world is still plugged with a lot of wheat and expectations are that we’ll see record global output for the 2020/21 crop year.
However, coming back to the present, wheat prices continue to clearly be attractive, especially in the cash markets as millers scramble to secure supplies. This isn’t just the case in North America, but also abroad; several EU supply chain risk managers have been reaching out to me in the past few days as they think about shifting priorities and logistical resources. For example, in Russia, has suspended exports of all processed grains (i.e. buckwheat, oat flakes, etc.) until the end of March but traditional exports continue be uninterrupted.
Further, in France, the government has designated the food industry as a strategic priority but firms are still struggling to find trucks to bring product from port positions to factories or warehouses. That said, French wheat prices are already performing fairly strong there as the country was on track to potentially set a new record for the amount of wheat exports. Thinking about their 2020 wheat harvest, only 63% of its soft (non-durum) wheat crop is rated good-to-excellent, down from 85% a year ago.
There’s also the general fear that products coming from the likes of Italy are somehow tainted or carrying the COVID-19 virus, so people are looking for alternatives (especially tomatoes and pasta). To be clear, I think this is unfounded, but in times of hysteria and fear, the rational thinking of many tends to go out the window. Accordingly, economists from the UN’s FAO are fully expecting food inflation to pop going forward as people “panic buy” and are asked to remain at home.
Speaking of home, cash wheat prices in North America have followed the trend of the futures markets, in reclaiming all losses over the past few weeks and pushing higher. More specifically, CPS wheat prices in Western Canada jumped nearly 12% in one week while HRS wheat prices were up 6.3%. As a reminder, wheat prices are usually in a seasonal downturn at this time of year. That said, wheat prices will likely get fairly choppy in the coming weeks as the bulk buying demand might influence Plant 2020 wheat acres to the upside. One last factor to keep in mind: a Canadian Loonie trading below 70 cents USD will continue to support Canadian cash wheat prices.
Overall, the current situation just sucks. I sat down on Friday night and reflected on the situation, which led me to ask what I think is now the most important question to ask in today’s COVID-19 chaos. All politics aside, we can’t go back and change what’s happened; we can only move forward. Given the economic downturn that is happening, those of us who are still in the workforce have a much greater responsibility to get things going again. The greatest error to be made right now for you, for your family, for your community, and our economy, is to be paralyzed by fear and not move yourself forward. Yes, our humanity is being tested but this has been seen before. Past generations have, as one, rose to the occasion; have collectively struggled and emerged victorious. It’s our time in history to do the same.
President & CEO | FarmLead.com | Combyne.ag