StatsCan the Highlight of a Disappointing August?
Wheat prices ended the month of August with another poor week, pushing the value of the complex further down as Harvest 2019 ramps up. Chicago wheat prices have pulled back the most last week as the spread against its main competitors has gotten a bit too wide. Soft red winter wheat prices have enjoyed a luxurious premium over HRW wheat (traded on Kansas City futures board) mainly because there’s very little milling quality SRW in the market. Further, corn prices hit some new lows last week, making it more attractive for feedstuffs buyers to put more corn back into their livestock rations.
Specific to Western Canada, cash wheat prices also took a tough hit in the month of August, thanks to the futures weak performance and actual yield production potential looking fairly decent. While cash durum prices have traded mostly sideways in 2018/19, we saw a sharp drop to start August, and then sideway from there, down about 4% from both the end of July 2018 as well as August 2019. Cash HRS wheat prices have taken a pretty steep fall, also entering September 13% lower than what we saw a year ago. Finally, cash CPS wheat prices performed the worst in August, down more than 15% for the month, and are now down 25% in the past 3 months! While it’s usually tough to nail the highs and lows, we have to be at the lows (or at least close to it).
To end August, Statistics Canada gave us some slightly bullish news for wheat. Digging in, durum production came in at the lowest end of the range of estimates at 4.42 MMT. If realized, that’s a 23% reduction year-over-year and 24% below the five-year average. The Canadian winter wheat crop also is down significantly year-over-year by nearly a third to 1.72 MMT. Comparably, the Canadian spring wheat harvest should climb 5% year-over-year and 16% more than the five-year average with 25.11 MMT estimated to get combined this year. At 31.25 MMT, the total Canadian wheat harvest would still be about 3% higher than the five-year average though, but 3% lower compared to the 2018/19 haul.
Worth also mentioning is that StatsCan increased its number for last year’s 2018 spring wheat harvest by 432,000 from their “final” estimate back in December. This increase was attributed to spring wheat yields in Saskatchewan and Manitoba each being increased by 1.5 bushels per acre (bpa) to 47.2 and 61.1, respectively. Looking at this year, yields are down across all varieties, with winter wheat seeing the biggest drop year-over-year (6.3 bpa). Overall, average wheat yields are currently forecasted by Statistics Canada at 47.5 bpa, down 1 bushel from last year and half a bushel below the five-year average.
While yields are expected to be down this year, spring wheat acres are making up for a lot of the acres in other varieties. Of note is that harvested durum acres are expected to be down 1.3 million from 2018, a statistically significant reduction (and the main reason behind the sharp drop in production year-over-year).
Overall, this year’s Canadian wheat crop is looking nearly 1 MMT smaller than the 2018 harvest and that should be helpful from a balance sheet perspective. Between trade issues between the U.S. and China, and drought issues in Australia, I’m hopeful that China will continue its bigger buying trend of Canadian wheat that it started last year. More specifically, through June, 2018/19 Canadian wheat exports to China has jumped 83% year-over-year to more than 2 MMT, the strongest since 2004.
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