Wheat Hoarding and Exporting
Wheat markets ended last week mostly in the red, due to some profit-taking and farming selling. However, the fundamentals for a rebound have remained intact and that’s what we saw on Monday, April 20th. More explicitly, there are some frost concerns in the U.S. winter wheat belt, while dryness in central Europe is threatening the crop there.
Conversely, putting some pressure on wheat has been ultra-cheap corn, which is now making its way directly into feed rations (instead of going into ethanol, which would then produce the DDGs to go to the livestock operations). That said, on our Combyne cash grain marketplace last week, we saw feed wheat prices across Western Canada continue to rise. However, I’m expecting some seasonality to start pulling back on feed grain prices here soon. Even with some meat processing plants closed, it’s likely that livestock producers will put their animals on maintenance or low-weight-gain rations, which translates into subdued feed grain demand.
As mentioned, central Europe is dealing with a shortage of moisture, and it’s the worst in Germany. Their national producer organization, DRV, says that the wheat crop there is desperate need of a rain after 2 months of practically nothing. That’s said, slightly higher acres mean Germany will produce more wheat than they did a year ago. While there are new crop concerns, there is a lot more focus on current wheat exports, and probably by no one more than Strategie Grains. The French analytical firm raised their estimate of EU 2019/20 ending stocks by 2.5 MMT, or 25% from their last estimate, to 13.6 MMT. The main reason for the increase is domestic consumption being significantly reduced, due to COVID-19 quarantines.
On the flipside, EU wheat exports are exploding thanks to the more competitive wheat prices in France and smaller competition from Russia, especially over these next few weeks as the remaining export quota set by the Kremlin gets filled. Thus, we already know that Russia will stop exporting for a few weeks in May/June, or until new crop supplies start coming to market. One bright spot though comes from Romania, who lifted all their wheat exports restrictions last week. As a quick check-in at home, through Week 36 of the 2019/20 crop year, Canadian non-durum wheat exports are down nearly 13% from last year with just under 10.9 MMT sailed from licensed exporters, while durum shipments are up 29% to 3.33 MMT.
This is an age-old reality though: as trade environments change, so do trade flows. With the U.S. Dollar so strong, it’s weakened the currencies of countries not named America, which, in turn, usually helps lift domestic prices for grain and other commodities in said countries. However, in these times of COVID-19, as the demand from abroad for these food supplies increase, there becomes more concern about being able to supply the domestic market, and thus limitations are imposed.
For example, India has invoked the “peace clause” on its MSP levels (minimum support prices), basically notifying the WTO that its subsidized prices for rice and wheat are beyond the limits imposed by the WTO. What this basically translates to is that, grain stocks are built up significantly and then, when they have too much and because storage facilities are inadequate in India, they dump the excess into the world market at a drastically lower price than what the rest of the world is trading. I like to call this strategy, “Wheat Hoarding and Exporting.”