Wheat Markets Tread Carefully
Alongside the rest of the grain markets complex, wheat prices on the futures board were able to end their skid and bounce a little higher on bargain buying and short-covering. While some of this could also be traders positioning ahead of the February 2020 WASDE report, the USDA has admitted that they’re only going to report on “publicly available information and data” pertaining to the Phase One trade war deal. That said, the White House reported last week that Chinese President Xi told U.S. President Trump that China WILL meet their trade targets despite logistical disruptions due to the coronavirus. More succinctly, those watching global economic activity continue to be concerned with the disruption in logistics and demand as hundreds of millions of people change their normal daily habits.
AgriCensus reported last week that wheat futures on China’s commodity futures markets hit their highest level in nine months due to a recent surge in wheat-based products since the spread of coronavirus is negatively impacting food movement. On a related function, Chinese wheat buyers bought some French wheat, bringing the total of shipments between the two countries to 1.3 MMT since July 2019. This is a massive bump compare to the five-year average for the same period of just 29,000 MT.
Also last week, Statistics Canada said that there are more cereals being held in the Canadian agricultural pipeline than a year ago, mainly due to the bigger cereals harvest. The survey of 8,600 Canadian farmers suggested that they’re also holding onto more cereals versus less canola and other specialty crops. That said, there are many questioning this on-farm canola stocks number as it’s estimated that between one and two million tonnes of canola still haven’t been harvested!
Specific to wheat (and as you can tell in the table below), there is a lot more non-durum wheat still on the farm, and a lot less durum available, be it at the farmgate or elevator position. Aggregately, across Canada, on-farm non-durum wheat stocks are sitting at 17.2 MMT, up more than 1.26 MMT from the same period a year ago and 8% above the five-year average. Unsurprisingly, the major of this wheat is held by farmers in Alberta and Saskatchewan (up 16% and 8% respectively from their five-year averages).
The obvious reason behind the higher supplies is attributed to a decent harvest that was taken off (or will be taken off; see above comments on canola if you need further explanation). The other obvious reason is that not as much Canadian wheat is being pushed out to an export position and non-durum wheat exports are tracking 15%, or nearly 1.4 MMT halfway through the 2019/20 crop year. Comparably, Canadian durum exports are up 43% year-over-year with nearly 2.5 MMT sailed. This is also a notable increase from the five-year average as Italy has seemingly come back to the Canadian market a bit more this year.
However, the demand is seemingly hand-to-mouth as average durum prices across Western Canada for spot movement continue to sit around that $7.50 CAD/bushel level. For HRS wheat prices, we tend to see a small uptick around the beginning of March but then we should expect values to dissipate as Plant 2020 starts up and seeded acres become more known. The questions you have to ask yourself going forward are (1) what’s my cashflow situation and (2) can I financially afford to “hope” for solid weather/planting concerns to boost prices by late May / early June. From my perspective though, hope is a not a risk management strategy and if you have to answer “I’ll need it before planting” to my first question above, then should you really be answering the second question?
President & CEO | FarmLead.com