Market Insider

Wheat Prices Gain as World Worries About Quality

The first week of December was pretty good to wheat prices, mainly helped by U.S. export sales and a small wheat production report from Australia.

Specific to the Land Down Undaa, we’ve known for a while that the crops in the Land Down have suffered significantly this year without much rain to go around. This is especially true in Eastern Australia where harvestable acres have dropped significantly from first expectations back in June when the growing campaign was just getting going. Last week, we got an update from ABARES, confirming what everyone has been thinking.

Wheat production in the Land Down Undaa has fallen to just 17 MMT, down nearly 5 MMT from the initial estimate back in June and a 20% decline year-over-year. Since a lot of this decline was attributed to Eastern Australia where the higher-protein wheat is grown, there continues to be concern in the exportable supply higher-quality wheat around the world this year.

Very concretely, this is why you’re seeing some much higher spring wheat prices right now (I’ve been hearing of some targets above $8 CAD / bushel getting picked off! Nice!) On the futures board in Minneapolis, hard red spring wheat prices gained nearly 6 cents for the week, up 1%, to close at $5.815 USD / bushel.

The gains likely would’ve been higher had it not been for a bit of a bearish production report from Statistics Canada on Thursday. Specific for total Canadian wheat production, the 2018 harvest was raised by more than 750,000 MT from the September data-based production estimate from StatsCan to 31.77 MMT. This is a 6% jump year-over-year and slightly above the 5-year average.

Spring wheat yields have surprised everyone, coming in at 50.5 bushels per acre, a full bushel more than the September estimate. Durum yields were also raised from the September report by 0.2 to 34.8 bushels per acre. While down from the 5-year average of 41.7, a total harvest this year of 5.74 MMT isn’t going to help durum prices without some demand to move through that sort of supply. Below is a breakdown of all the crop production estimates from StatsCan and their relevant changes from previous estimates this year, last year, and the 5-year average.

Finally, finishing in the U.S., wheat markets had a big day on Friday December 7th as market participants responded to a week of strong U.S. export sales. While total export activity is down year-over-year, it’s a positive sign for future sales. This is mainly because, usually around this time of year, you start to see Black Sea wheat exports slow down, and southern hemisphere supplies start entering the market. However, there is going to be less solid quality coming out of Argentina and certainly lower quantity out of Australia.

Heading into the second week of December, grain markets are mostly focused on this month’s WASDE report on Tuesday, December 11th. Specific to wheat, we will be mainly watching if the USDA updates production and export numbers s for the Black Sea and Australia.

That in mind, here’s what grain markets are expecting in tomorrow’s WASDE report for ending stocks, and as compared to the November WASDE and final 2017/18 numbers.

1.    945 million bushels (MBU) of U.S. soybeans; 955 MBU in November WASDE; 438 million in 2017/18;
2.    112.8 million metric tonnes (MMT) of global soybeans; 112.08 MMT in Nov WASDE, 99.7 MMT in 2017/18;
3.    956 MBU of U.S. wheat; 949 MBU in November, 1.09 billion bushels (BBU) in 2017/18;
4.    266.8 MMT of total global wheat; 266.7 MMT in November;  279 MMT in 2017/18;
5.    1.738 BBU of U.S. corn; 1.736 BBU in November WASDE; 2.14 BBU in 2017/18; and
6.    307.6 MMT of global corn; 307.5 MMT in November WASDE; and 340.9 MMT in 2017/18.

As we’ve said a few times though, we’re expecting volatility for the next few months until some of this geopolitical risk subsidies. If it doesn’t, then we can likely expect more sporadic moves. Your grain marketing plan should account for some of this erratic behavior, but being cognitive of the reality that there’s both volatility to the upside, but also to the downside.

To growth,

Brennan Turner

President & CEO |