Spring Wheat Might Find Further Favour Yet
Wheat markets pushed into the month of March with a bit of a divergent attitude between winter and spring wheat prices. For the month of February 2019, both the Chicago and Kansas City futures boards saw their respective winter wheat prices drop more than 60¢ USD/bushel. About half of this loss came the last week of February alone, including the Chicago soft red winter wheat prices falling 7% to close at a measly $4.57. This was the worst one-week performance for Chicago SRW wheat futures since late August!
In the U.S., the recent winter weather (namely snow) has been limiting grain movement. Accordingly, basis levels for wheat at most American ports jumped about 20¢ USD/bushel for both spot and deferred delivery. Also likely having an impact on the jump in basis is the lack of farmer selling, especially in winter wheat. Comparably, hard red spring wheat prices in Minneapolis only lost 6-10¢ USD/bushel last week and 15-19¢ for the month of February total.
On the cash front in Western Canada, we’ve seen hard red spring wheat prices also pull back a bit albeit strong basis continues to support things a little bit.
That being said, new crop basis continues to inch higher. In my opinion, this new crop basis on HRS wheat prices are hard to ignore, especially if you compare them to a year ago. Further, I’m starting to wonder if the bigger HRS wheat acres in Canada and the U.S. are being fully priced in or not.
Switching continents, Australia is just wrapping up the warmest summer ever, in addition to being in the top 10 of driest summers on record. Australia’s Bureau of Meteorology is recently said that December and January were the hottest months ever for Australia. Further, February ranked in the top 5 warmest ever. Finally, rainfall throughout the summer across the Land Down Undaa will total 30% below average. This would make it the driest summer season in over 35 years!
Looking further out, Australia’s autumn (March to May) is expected to be drier-than-average in the eastern regions with the entirety of the country experiencing above-normal temperatures. Autumn tends to be critical time of year for the agriculture industry in Australia as that’s when planting gets going, but this is entirely dependent on soil moisture conditions. While the government forecaster reminds us that intense rainfall can occur, it’s expectations of moisture are a bit limited. If there was a “most significant bullish factor” to watch for spring wheat prices, Australia’s dry conditions entering.
This week, we’ll get some updated forecasts from other government forecasters, including Australia’s agriculture body, ABARES, on March 5-6 and the USDA, in the form of their monthly WASDE report on March 8. While these reports might give us some insight into the crop production and export expectations for the likes of Australia, Canada, and others, the reality is that Canadian and American spring wheat exports both continue to excel.
Through Week 38 of the U.S. wheat crop year, American hard red spring wheat exports are tracking 15% higher year-over-year with 4.76 MMT exported. Comparably, through Week 30 of Canadian 2018/19 crop year, shipments are tracking 17.4% higher year-over-year at 10.4 MMT. At this point, Agriculture Canada’s estimate of 18.7 MMT might be on the low-end of things. In fact, 19 MMT might be more realistic as international buyers find further favour purchasing North American product.
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