Huge supply pressures prices | An abundance of corn and soybeans could also send wheat prices downward
It’s a smart time to lock down some wheat prices because a wheat tornado is twisting toward the market, say some analysts.
Once the Canadian crop comes in, it might be hard to find decent prices or basis levels.
“I don’t think the U.S. traders are prepared for how big the Canadian wheat crop is,” said broker Ken Ball of P.I. Financial in Winnipeg.
“I don’t think they’re even remotely prepared.”
Wheat prices have been grinding lower since May, with futures prices falling from about $8 per bushel to $7 for the December Minneapolis Grain Exchange hard red spring wheat contract. As well, basis levels are widening as elevator companies prepare for a flood of all crops.
The price weakness wasn’t alleviated by the U.S. Department of Agriculture’s Sept. 12 World Agricultural Supply and Demand Estimates, which estimated Canadian wheat production at 31.5 million tonnes.
That’s one million tonnes above the present Statistics Canada estimate and two million tonnes above the USDA’s August estimate.
However, Ball thinks that’s far from acknowledging the giant crop that Canadian farmers are now harvesting.
“They’ve got millions of tonnes more to go (in boosting their Canadian production estimate),” said Ball.
“It could be 35, 36 million tonnes, easily.”
The USDA is estimating healthy consumption of wheat in North America as a feedgrain, but CWB market analyst Neil Townsend thinks that large size of demand is doubtful.
The big shock of the WASDE report was that USDA increased U.S. corn yields rather than slightly reducing them. This created the prospect that an even bigger than expected U.S. corn crop will soon be causing bins to bulge.
As well, the report didn’t reduce U.S. soybean yields.
It means a mountain of feedgrains is coming toward the U.S. market, which will be directly competing with Canadian feed wheat.
Big overseas crops of corn from places such as Ukraine will also make it hard to move feed wheat out of North America at anything other than bargain prices.
“There’s just so much corn and coarse grains around,” said Town-send.
Farmers needing to move feed wheat on the Prairies will deal with a big barley crop and the ever-present supplies of U.S. dried distillers grain, as well as corn.
“Everything else is going to be available in Canada,” said Townsend.
If Southern Hemisphere crops do well this winter, crops could become much cheaper with little supply pressure to spook markets.
Ball said farmers might want to protect some prices and basis levels, especially if they are going to have a lot of wheat to sell and little is priced.
The situation will affect a lot of farmers who all might start pricing soon.
“Get a good quote because once the elevators fill up in the next couple of weeks, basis levels could get pretty ugly,” he said.