Why Haven’t Wheat Prices Rallied More?
As grain markets flipped the calendar to November, many were hoping it was also flip the script on the battle that’s been Harvest 2019 and the sideways-to-bearish nature of the complex in October. Technically, wheat prices on their three futures boards were mixed last week, but for the month of October, only hard red spring futures couldn’t find a positive gain. However, it’s worth noting that the last few days of September saw quite the run-up in HRS wheat prices has harvest concerns were amplified. Heading into this week, speculators continue to hold a net-short position on Minneapolis hard red spring wheat of just over 9,360 contracts, an increase of 1,300 positions from the previous week.
I’ve gotten a lot of questions lately about why we haven’t seen better quality premiums yet for the early-harvest wheat crops. The reality is that the market continues to think about the large amounts of grain available globally, especially the large amounts of good quality that’s was carried over from the 2018/19 crop. This is especially true for the durum market, where, in some cases, two years of good, quality harvests have been left in the bin until now as farmers have been looking for that long for better prices.
On the flipside, buyers of feedstuffs are also content, knowing that there’s a lot more grain that’s likely going into the feed market this year due to the late harvest. In their estimate last month, Agriculture Canada was expecting wheat going into the feed category to bump 5% year-over-year to 4.25 MMT. Further, AAFC has feed demand for barley climbing 10% from last year to 5.87 MMT.
I expect these numbers to climb yet again in the AAFC November update, as there’s a lot more higher moisture crop that’s been combined. Accordingly, this increased supply is weighing on feed grain prices. In fact, entering November, Alberta feed wheat prices are down about 11% from the same point a year ago, and down 15% from where they were at the beginning of August. Comparably, feed barley prices in the Wildrose province are down 13% and 19% over the same timeframes, respectively.
Looking elsewhere, wetness seen in central Europe is offsetting some of the benign-to-slightly drier conditions being seen in the Black Sea and the American Southern Plains. In Europe, major producers, France, Germany, and the UK are all a bit too wet and the above-average rainfall has kept farmers away from planting their 2020 winter wheat crop. Wetter conditions lately in Russia has helped conditions there but Ukraine is still a bit too dry. This is where I usually remind you, the reader, that conditions are rarely, “just perfect” so we’ll take the concern from the Ukraine and even the likes of Texas, Oklahoma, and Kansas with a grain of salt.
Separately, the Buenos Aires Grain Exchange just downgraded the Argentine wheat crop again, this time by another 700,000 to 18.8 MMT. While the USDA is currently sitting at 20.5 MMT of 2019/20 wheat production in Argentina, it’s likely we’ll see a reduction from them as well in their November WASDE report, out this Friday, November 8th. It’s likely because, in the last crop report, just 20% of the country’s was said to be in good condition, with literally none of it rated as excellent. Certainly, international wheat buyers are keeping an eye on this situation and not getting caught on the wrong side of any moves in the market.
P.S. If you’re headed to Red Deer, AB this week for Agri-Trade, stop by the FarmLead booth on the Centrium Concourse and learn about Combyne, the most personalized grain marketplace ever built.
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