Market Insider

Wheat Sinks on Supply Updates

Wheat markets had a tough close to the month of February as Chicago, Kansas City, and Minneapolis all skidded alongside the rest of the grains complex, as well as outside equity markets. Last Friday, the Dow Jones stock market officially wrapped up its worst week since 2008, losing 12%, including Thursday’s loss of nearly 1,200 points, its largest one-day drop ever. Similarly, the S&P 500 shed 11.5% as the two equity markets are coming off new record highs posted just a few weeks ago. Fear has been spreading through the market as fresh coronavirus cases, including the second death in the U.S. over in Washington state and more the first case confirmed in the state of New York.

Another negative headline pushing wheat prices lower was the International Grains Council estimating that farmers will produce a new record of 769 MMT of wheat in the 2020/21 crop year. This would be a 2% bump year-over-year, mainly because of the higher area of wheat expected to get planted globally. Where there’s less wheat getting planted is in the United States, albeit the results of the fall seeding campaign of the American 2020 winter wheat crop is looking healthy.

According to recent USDA data, the portion of good-to-excellent wheat is higher in most states including Colorado (+9 points year-over-year to 59% G/E), Oklahoma (+8 to 45%), South Dakota (+27 to 73%), Nebraska (+9 to 69%), and Michigan (+10 to 56%). Conversely, two of the largest producing states, Kansas and Texas are looking slightly worse, down 16 points to 35% G/E in Kansas and down 7 points in Texas to 31%.

Looking across the pond, the most recent update from Ukraine’s state weather agency says that the country’s winterkill losses in its winter wheat crop were basically nil. Despite the 15.8M acres of winter wheat was planted in the Ukraine last fall being a slight drop from 2019, Harvest 2020 is looking a bit favourable with healthy weather forecasts and adequate soil moisture.

Staying in Europe, the EU’s soft wheat exports are now tracking 2/3s ahead of last year’s pace with 18.7 MMT shipped out through the end of February. Conversely, where wheat exports are slowing down is Argentina as the government, last week, suspended the registration of any agricultural exports until further notice. Most industry players think that the move comes ahead of what will likely be much higher export tariffs. As a reminder, grain export tariffs were already hiked once in December by the new government in order to stave off any potential for default on their exponentially-growing national debt.

Speaking of government intervention (or lack thereof), it’s been estimated by the Western Grain Elevator Association that between demurrage costs, capacity losses, and contract penalties, the railroad blockades in Canada have cost the grain industry about $9M CAD/day or $63M/week. This intuitively has put pressure on cash grain prices as elevators aren’t as readily able to buy since their own storage capacity is already spoken for with less trains coming through to empty their bins.

If we were to clear through the coronavirus concerns and get grain moving again though, grain markets have some opportunity to rebound in March. However, it will be a tough chore for the wheat complex, especially as the markets start looking more and more to potential 2020 supply volumes. In their February estimate, Agriculture Canada raised 2019/20 durum carryout by 50,000, but kept 2020/21 ending stocks at 1 MMT. Conversely, a weaker non-durum wheat exports outlook pushed AAFC’s estimate of non-durum wheat carryout in 2020/21 to a five-year high of 5.7 MMT.

The bottom line is that the wheat market is looking for a few bullish demand headlines. Thus, to help set expectations, expect some sideways trading activity for the next few weeks that should be amplified by coronavirus / global economic concerns.

To growth,

Brennan Turner

President & CEO |