Wheat Prices Try to Finish 2018 on the Upswing
Last Tuesday, we got the USDA’s December WASDE report. As reminder, in the November WASDE report, the USDA adjusted production and carryout numbers for China, which boosted corn and global wheat stocks significantly.
Globally, if we didn’t count a significant increase in Chinese wheat numbers from the November WASDE report, the total 2018/19 global harvest would’ve been lowered by 1.9 MMT in that report. But again, with China, global wheat ending stocks were raised up to nearly 267 MMT.
In the December WASDE, global wheat ending stocks for the 2018/19 crop year were raised by nearly 1.5 MMT from the last WASDE report, but this was mainly attributed to U.S. and EU wheat ending stocks climbing as a result of less exports from these players.
On the bearish side, Russian wheat exports were raised by 1.5 MMT but Australian wheat exports basically offset that, as they were lowered by 1 MMT from last month, thanks to their smaller crop. With bigger Russian wheat exports, this will put some pressure on U.S. wheat prices for similar protein levels.
Exporters and Russian ag ministry officials met this week to align on what do with wheat exports going forward. There have been rumours swirling for a few weeks now that the Russian government might step in to prevent food price inflation and put a cap on wheat exports.
On that note, currently, Russian wheat exports are flying out of the ports. As of December 1st, Russian on farm wheat stocks are down 29% year-over-year. With Russian livestock feed demand maintaining a pace similar to last year, it’s expected that the amount of exportable wheat supplies are quickly dwindling. This likely translates to a window of opportunity opening up in 1Q2019 for other major wheat exporters.
And it seems like we’re starting to see some of that competition today. China has become the 4th largest buyer of U.S. spring wheat (mainly for blending purposes though). On that note, through Week 27 of the 2018/19 U.S. wheat crop year, American hard red spring wheat exports are tracking 4% above last year’s pace with 3.27 MMT (or 121.2 million bushels) shipped out.
A similar dynamic has been seen in Canadian non-durum wheat exports, as China has been a very large buyer, helping support domestic cash wheat prices. With this in mind, shipments through Week 19 of the Canadian crop year are tracking nearly 19% higher; Marketing-year-to-date, 6.9 MMT of non-durum wheat has been exported from Canadian ports.
Switching gears, durum prices have been nothing to write home about, but there have been some incremental gains worth recognizing. This is especially notable in Italy where values are up nearly 6.5% in the past month.
One thing to consider this year for durum wheat prices is that Australia won’t be much of a player, given their drought this past growing season. This means not a lot of Aussie durum exports as most production will go into domestic mills and even feed rations as the demand is so high. That being said, we’re not necessarily seeing those values translate to better prices in Western Canada just yet. As a reminder, the high for durum prices in the 2017/18 crop year was actually in January!
Finally, gain fell last week in northern Argentina, just as the wheat harvest was starting to pick up steam. More rain is expected early this week so this, combined with recent frosts, we might see more production downgrades from the country. It’s obvious to also expect to see quality issues as well. Despite the rain, it’s estimated that the Argentine wheat harvest is nearly 2/3 complete.
On that note, the Buenos Aires Grain Exchange lowered their estimate of Argentina's 2018/19 wheat harvest by 200,000 MT to 19 MMT, mainly because of the rain and frost. Combined with the smaller Australian wheat crop, the Southern Hemisphere harvest is seemingly providing a good window of opportunity for wheat prices as we flip the calendar into 2019.
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