Wheat Waiting in the Wings
Wheat prices were slightly stronger last week on some weather and tradeflow headlines, but grain markets were dominated by the signing of the Phase One trade deal between China and the United States. Unfortunately, soybean prices didn’t react that well to the deal as there is a lot of vague legalese in the agreement, including this main point in Chapter 6: “The Parties acknowledge that purchases will be made at market prices based on commercial considerations, and that market conditions, particularly in the case of agricultural goods, may dictate the timing of purchases within any given year."
I’m not going to try to paint a better picture for you than Jon Hilsenrath of the Wall Street Journal already has: "The U.S. and China have ended up in an odd position. China, a one-party state with communist roots, insists that market forces determine the outcome of its purchase commitments. Meanwhile the U.S., a voice for capitalism, depends on massive state intervention to meet purchase commitments."
Coming back to the wheat market, last week there were reports that Russia will limit grain exports to 20 MMT from now until June as means to ensure domestic food security and limit food price inflation. While Russia’s grain exports for the period is estimated to come in somewhere around 15-20 MMT, the point is that the government intervention/regulation is seen as a negative construct, creating non-supply or demand factors that could impact wheat prices. Nonetheless, it could further support U.S. wheat exports (tracking 16% higher year-over-year) and/or help Canadian non-durum wheat exports to improve (tracking nearly 16% lower year-over-year).
Also, some warmer weather in the U.S. Southern Plains could inadvertently restart the growth of the winter wheat crop in the region. While this is bullish for new crop 2020/21 winter wheat prices, I’m reminded by the record carryout of wheat around the world, and how that might cap any significant rally (at least above what we’ve already seen over the last few months). From a cash standpoint for Western Canada, CPS wheat prices for spot movement faded a bit over the past week but are still at well-above average levels for this time of year.
Meanwhile, feed wheat prices (along with most other feedstuffs) have started to level off as temperatures start to warm up from the drastic cold seen for nearly two weeks. Given the ample amount of feed grains available to the market this year, the small pops in the market going forward may only be applied when either (1) there’s more competition from the export markets and/or (2) it gets cold again. The latter is sure to happen but the export competition remains a bit lacklustre (which will continue to provide evidence for the less-than-ideal values of the milling wheat market).
Overall, it’s great to finally get “Phase One” behind us but the Trump administration has more trade bones to pick, namely with the EU, the soon-to-be-Brexited UK, and more recently India. The broader grain market will look to these headlines for further indication of changes to tradeflows but at this point, it’s a waiting game for the next major geopolitical move. Further, these moves are more likely to impact corn and soybeans, but wheat will surely play a little follow-the-leader.
President & CEO | FarmLead.com