Market Insider

Will Better Rail Movement Mean Better Wheat Prices?

The slower movement of grain this year in Western Canada draws comparisons to 2013/14. What did spring wheat prices do then and how might things change going forward?  It’s clear that grain transportation by rail, as well as grain handling capacity, are scoring very poor again this year. Therefore, we wanted to assess whether 2017/18’s outcome is going to be as bad as the 2013/14’s transportation issue. We’re specifically looking at the previous 6 weeks, as well as the next 6 weeks. We then are comparing this against Ag Canada’s forecast for full-year export numbers.

Thus far in 2017/18, according to CGC, year-to-date volumes of all exported grains are at 24.8 million tonnes. This basically matches the three-year average but is in fact nearly 16% (or roughly 3.3 million MT) higher than the same period in 2013/14. What is likely going to happen as we roll through the next six weeks? Well, the ideal situation is that Canada’s grain handling system will run at a very fast pace to achieve Ag Canada’s export target. To meet the 46.2 million tonnes of total Canadian grain exports forecasted for the 2017/18 crop year though, the pace of exports will have to nearly double! Quite simply, this would mean that Canadian total grain exports would have to jump to more than 1 million tonnes, from the 600,000 tonnes or so that’s been shipped out weekly right now.

Looking at Canadian wheat exports (not including durum), we’ve seen 9.1 million tonnes getting shipped out of country thus far in the 2017/18 crop year. Going into week 32, Canadian non-durum wheat exports are actually tracking a bit behind the 2013/14 pace. To be completely frank, it’s becoming obvious that Canadian wheat exports have been running out of steam in the past couple of weeks.

The last six weeks, Canadian non-durum wheat exports have been averaging around 280,000 tonnes. Right now, Ag Canada is forecasting that total Canadian non-durum wheat exports will hit 17.2 million tonnes for the 2017/18 crop year. For that target to be met, we’ll need to see almost 400,000 tonnes shipped each week for the next five months!

As our third chart shows, spring wheat basis levels widened significantly in 2013/14. Remember? No one wanted to buy your product without a steep discount attached to it! However, once grain movement started to improve in the spring and summer months, spring wheat basis levels started to narrow significantly, even going positive for a brief moment in fall 2014! More recently, we’ve seen spring wheat basis levels widen again to below the three-year average. Every time we’ve gotten near that three-year average, there seems to be farmer selling and prices dip.

One also has to consider the volatility of the USD-CAD exchange rate here, in addition to international competition from the likes of Australia wheat and even, to a certain extent, Argentinian wheat! To conclude, wheat exports have been trending lower with weaker rail movement, and basis has widened a bit. While current basis levels are not as deep/negative as they were in 2013/14, we could certainly expect some improvement in the coming months. That being said, we’ve seen some better bids for hard red spring wheat for summer movement, but we’re not antsy to make sales just yet.

To growth,

Brennan Turner
President & CEO |