Wheat Eyes WASDE, Smaller Aussie Harvest
Last week, the USDA presented its February edition of their World Agricultural Supply and Demand tables but wheat markets were reminded yet again by the U.S. government that there’s still a lot of wheat in the world. Accordingly, wheat markets pulled back for a red weekly performance.
Of note in the WASDE report was changes to U.S. spring wheat, as well as exports for Europe and Canada. In the U.S., the USDA dropped its forecast of HRS wheat ending stocks for the seventh consecutive WASDE report, this time by 15M bushels, to now sit at 249M bushels (or 6.78 MMT if converting bushels to metric tonnes). Further, the USDA maintained its upbeat for U.S. durum exports, which are expected to total 1.09 MMT (or ~40M bushels), which would be an 82% bump year-over-year. That said, U.S. durum exports are tracking 79% higher through Week 36, while HRS wheat exports are tracking about 4% higher.
For Canadian wheat exports, the USDA lowered their outlook by 500,000 MT, mainly due to some of the aforementioned competition from the U.S., but also the European Union. 2019/20 wheat exports from the EU were raised by 1 MMT to 32 MMT, which is nearly 10 MMT more than a year ago! According to the European Commission total wheat exports are tracking 73% higher than a year ago with 17.5 MMT sailed through last week. Looking forward, Strategie Grains downgraded their estimate of the EU’s 2020 soft wheat harvest by 1.2 MMT to 138.6 MMT. However, they note that the loss should be more than made up by the Black Sea, where winter wheat conditions are looking favourable.
The big asterisk amongst the major global wheat exporters is Australia. ABARES just came out this week and said that the 2019/20 wheat harvest was nearly 700,000 MT less than the 15.85 MMT they said back in December. Some private estimates put the number even lower, closer to 14.5 MMT, which would suggest available exportable supply (after domestic needs are met) of 7 – 7.5 MMT. Intuitively, this has helped wheat prices recover to start trading in the 3rd week of February.
Coming back home, Canadian non-durum wheat exports are tracking 15% behind a year ago through Week 27, good for 8.15 MMT sailed. Kicking Canadian wheat exports in the teeth (and all grain exports for that matter) though has been the recent blockade of railroads by climate protesters. I’m not going to reiterate what you’ve read a 1,000 times already but this is not good for Canada but the lack of enforcement of the law does not look good on Canada. Increasingly, customers of Canadian grain will doubt our reliability as shippers, not to mention international investors who look to deploy capital in countries where an ROI won’t be handcuffed by a lack of national leadership from the government.
Bottom line for wheat prices is that we should expect some seasonality to the downside in the coming weeks, but these moves are being exacerbated by fresh headlines of said climate protests in Canada, coronavirus fears, and the U.S. Presidential election ramping up. In the meantime, the USDA’s Canadian attaché says more wheat is going into to the feed market this year. Unsurprisingly, feed grain prices are starting to pull back a bit (which aligns with the seasonality I mentioned).
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