Wheat Finding Weather Premiums (Finally)
Wheat prices found the biggest gains last week as major American winter wheat production areas – especially Kansas – have seen more precipitation in the month of May than pretty much any other year in the record books. Despite the heavy moisture, the USDA says that, in Kansas, America’s largest wheat-producing state, the percentage of the winter wheat crop there rated good-to-excellent (G/E) has ticked higher every week to now sit at 60%. Ultimately, the additional moisture has slowed down crop development, in addition to likely having a detrimental impact on the quality of the crop as it heads out and gets closer to harvest. That said, the hard red winter wheat harvest is just getting started in southern parts of Texas.
Comparably, the wheat harvest in Western Canada is about 2 months away from getting started but most of the industry is just looking for some moisture to help get the crop going! Through last week, most of the Canadian Prairies have received less than 60% of their average precipitation from the beginning of April. As the map below indicates, a significant area of the region has received less than 45% of the average moisture for this time of year. Quite the opposite of the American Heartland!
With the Plant 2019 seeding campaign in Western Canada well past the halfway point for wheat, the focus of the market is starting to shift to what the possibility of this year’s crop might look like. Recently, Agriculture Canada updated its supply and demand forecasts, highlighted by some higher expectations for both production and exports. Starting in the durum market, AgCanada also raised exports for both 2018/19 and 2019/20 by 100,000 MT and 50,000 MT respectively. This would thus push 2018/19 and 2019/19 ending stocks down by 100,000 MT each to now sit at 1.9 MMT and 1.5 MMT respectively.
In non-durum wheat, 2018/19 were lowered by 100,000 to 3.9 MMT, but this was just a reflection of exports being raised by an equal amount to now be estimated at 18.8 MMT (a figure I think will be easily reached). The downside though is that the AAFC raised 2019/20 production estimates by 700,000 MT. While 2019/20 exports were raised by 500,000 MT to now sit at 19 MMT, this means 2019/10 carryout gets bumped higher by 200,000 MT to now sit at 5.6 MMT (a 44% jump year-over-year!)
Overall, wheat prices are starting to get into a bit of a weather market. The forecasts from the likes of the USDA and Agriculture Canada are based on average weather; it begs the question though: is there such a thing? Considering the wetness in the southern Plains and the dryness in the Canadian Prairies and parts of the Northern Plains, weather premiums are certainly being built into the market. What we do know is that, weather markets, spring wheat prices tend to top out around the middle of June, albeit keep 2017 in mind when that first week of July saw the best prices in a decade! This isn’t to say to wait until these dates on the calendar to make a sale, but to sell into strength with them in mind.
President & CEO | FarmLead.com