Wheat Falls as Trade Production Questions Increase
Wheat prices lost some ground this week as the complex saw profit-taking and farmer selling erase its significant gains seen in March. Last month was indeed helpful with Chicago SRW wheat futures gaining 8.3%, Kansas HRW wheat futures were up 8.8%, but Minneapolis HRS wheat futures only gained 2.2%. It’s worth keeping in mind that while March was positive, compared to where we started the first calendar quarter of 2020, things are lower, especially for hard red spring wheat prices.
It’s worth mentioning that the USDA’s Prospective Plantings report last week suggested that U.S. farmers will plant 1.29M acres of durum this spring, down 4% or about 50,000 acres from last year. They’re also expecting about 11.9M acres of HRSs wheat, down about 1% year-over-year. There are, however, some major concerns about a second consecutive year of Prevent Plant negatively impacting seeding capabilities in the Minnesota and the Dakotas. For the U.S. winter wheat crop that’s just emerging, some extremely cold weather in the American Southern Plains has likely killed off a few fields. Further compounding things is drought concerns in Colorado and Oklahoma.
Also pressuring wheat prices last week was the fact that commercial U.S. wheat exports sales for the last week of March were just 73,000 MT, a new marketing-year low and a drop of 90% year-over-year. That said, total U.S wheat exports are still tracking well, up 8.5% year-over-year with nearly 19.8 MMT sailed. Conversely, Canadian non-durum wheat exports are down 14% year-over-year with just over 10 MMT sailed through Week 34.
Going forward, there are many questions as to what the scramble for food security at the country level will translate to for trade flows. So far, we know that Kazakhstan is putting limits on its wheat flour exports, while Ukraine is looking to put quotas on wheat and flour exports. It’s worth noting that Ukrainian grain exports have hit a new record of 46 MMT through last week, including nearly 18 MMT of wheat.
Brazilian millers are asking its government to drop the country’s 10% import tariff for wheat coming in from anywhere other than Argentina, Paraguay, or Uruguay. Further, there is the labour issue of having enough farm workers to get production off the field and into consumers hands, be it for legal reasons or for those scared of catching the COVID-19 virus. We know this to be especially true for fruit and vegetable farmers in both the U.S. and Canada, but nowhere is this more paramount than in India where a combination of poor storage infrastructure and fragile food security systems.
Amidst their 21-day (or longer?) lockdown, farm workers across India have returned home to their villages, leaving field after field of rabi winter crops standing just as they’re ready to be harvested. Further, these same migrant workers are responsible for processing/cleaning the crop, and bringing it to markets. Thus, for a country where food security will be paramount in the next few weeks, the impact of reduced production could be significant. It’s also why we saw lentil prices jump by nearly 40% in the past week on our Combyne cash grain marketplace, as speculative buying has opened up a lot of bin doors in the past few weeks!
Speaking of the cash market, low-protein wheat prices have fallen further than HRS wheat prices, albeit they’re both still in the top 10% for the marketing year! Durum prices, on the other hand, continue to reach new marketing year highs as speculative buying has boosted both spot and new crop prices. For context, the last time we saw average Western Canadian spot durum prices above $8 CAD/bushel was August 2017 as drought conditions in both the U.S. and Canada led to a smaller harvest. It’s also worth noting that average new crop 2020 durum prices are trading above $7.60!