Wheat Markets Poised to Rebound?
Before we get into some of the craziness that’s been the markets/world, I want to first look at some of the fundamentals for the wheat markets outside North America. Australia has been getting some good moisture lately and while still not enough, more private forecasters are increasing their estimate for the Aussie Harvest 2020 wheat crop.
Where estimates are also increasing is from France, where soft wheat exports outside the EU were raised by FranceAgriMer for the 6th straight month to 12.7 MMT. If realized, that would be one-third higher than 2018/19’s French wheat exports and the largest amount since the 2010/11 crop year. That said, their increased demand was based on North Africa and China buying more, but it remains to be seen if that trend will continue in the coming months given the impact of the coronavirus continuing its spread. Conversely, with their smaller crop in 2019, Russia has only exported 24.2 MMT of wheat through last week. That’s down 19% compared to the same point a year ago and will have to pick up the pace to meet the USDA’s estimate of 35 MMT.
One wheat market that may get some interest in the coming months could be durum, as people around the world have rushed out to grab food staples, such as rice and pasta. While it’s inherently hard to estimate what this surge in demand looks like, it will have some serious competition with international demand as shipments picked up pace at this time a year ago, especially in Canada. That said, through week 31, Canadian durum exports are tracking 41% higher than a year ago with 2.85 MMT sailed (This is also a few boatloads more than the three-year average!). Similarly, U.S. durum exports are nearly double what they were a year ago.
It’s unlikely that the volatility within the markets will get better any time soon. As these are unknown times, there is obviously a lot of fear in the market and accordingly, things get volatile, but mainly, fear is a price killer. This is the same for grain prices, albeit there is a clearer understanding of supply and demand for foodstuff commodities. That said, grain prices are just as susceptible to wild swings as the stock market. Therefore, there’s likely to be further rollercoaster rides for grain prices, with lows already seen below what last Friday’s markets closed at.
Where grain prices – and specifically corn and low-protein wheat prices – could start feeling a demand pinch is from the ethanol side of things. With remote work policies in place at those companies who can don’t need people physically on-site (mainly white-collar occupations), demand for blended gasoline in America is expected to fall by about 20%. That said, while Chicago wheat investors continued to extend their long positions last week, HRW wheat sentiment got more bearish with the largest weekly sell-off since July 2018 and the net-short position in Minneapolis HRS wheat grew for the 6th straight week and is now near a record-short position. Keep in mind that flour and byproducts like breads and crackers are staples in times like these and given the bearish sentiment, the contrarian indicators suggest wheat prices might start to rebound soon. If realized, I believe that this would be good for grain prices in general.
To end, in a bit of good news out of Ottawa for the Canadian agriculture industry, Parliament ratified the new North America free trade agreement, USMCA, before it went on recess for 3 weeks. Why the break? With a few Parliamentarians already in self-isolation quarantine (including Prime Minister Trudeau, who’s wife, Sophie, tested positive for COVID-19), government officials are doing its part to minimize the spread of the virus and prevent a run on the Canadian healthcare system. This strategy is arguably the first thing that’s come out of Ottawa in a long time that all of us in Canadian agriculture can agree with.
President & CEO | FarmLead.com