Canadian spring wheat is flowing well out of Western Canada so far, but the giant crop will need good rail service and discount prices to be cleared from the Prairies this year, analysts say.
“It’ll be the narrow spreads that help pull the spring wheats out of Western Canada,” said Chuck Penner of Left Field Commodity Research about the relative cheapness of spring wheat compared to hard red winter wheat.
“Hard red winter is so expensive that the Brazilians are probably looking for other sources,” said Neil Townsend of the CWB about the possibility of Canadian spring wheat reaching that market in 2013-14.
Canada has a large wheat crop to move, but offshore demand for North American wheat has been excellent in recent weeks, with U.S. winter wheat pouring off the West Coast to Chinese buyers.
Early harvested Canadian spring wheat is also flowing well, catching some of that Chinese demand and finding interest from other buyers of quality spring wheat.
So far this crop year, about 1.33 million tonnes of Canadian wheat has been exported, with 925,000 tonnes being No. 2 CWRS, according to Canadian Grain Commission statistics to Sept. 26.
But Townsend and Penner said most spring wheat won’t make sales if it isn’t discount priced.
“There’s just a lot of wheat out there,” said Townsend, noting only one of the world’s top seven wheat exporters has production challenges.
“There is just no shortage of wheat among them.”
Minneapolis spring wheat futures are in the rare situation of being slightly lower priced than Kansas City winter wheat, revealing the relative high price of hard red winter wheat.
On Monday, the U.S. Department of Agriculture reported that overall U.S. wheat acreage this year was down eight percent from 2012, with 45.2 million harvested acres. But production is down only two percent for spring wheat, while winter wheat is down seven percent and durum down 26 percent.
That tightness of hard red winter wheat is making some buyers consider spring wheat as an alternative, the analysts said. Hard red winter wheat suffered from the lingering effects of the 2012 U.S. drought.
While demand for high protein spring wheat is good and that is reflected in the futures, much of the prairie crop falls short of those specifications and needs to be discounted to find buyers.
The price drop could be steep if the bulk food wheat or feed market must be tapped.
“A lot of Canadian wheat is probably just going to be in that generic wheat category,” said Townsend.
Prices for lower grades of wheat and for feed wheat are likely to drop when the U.S. corn crop begins flooding the elevator system, Townsend said.
“I think people are underestimating the harvest pressure we’re going to see there.”
Aside from price issues, wheat will still have trouble getting off the Prairies because of capacity constraints.
“It’s going to be impossible to move all of the wheat, canola and whatever else we have in Western Canada to the level we’d like to see because the logistics won’t handle it,” said Townsend.
“People are saying good, positive things about the railroads right now. They’re stepping it up by putting on a lot of cars and trying to move the grain, but there’s a lot to move.”
Townsend said the recent heavy movement of U.S. winter wheat and a rally in spring wheat futures isn’t likely to be a sign of the shape of the sales season to come.
The recent action is the result of possibly temporarily increased Chinese buying, low production of high protein wheat and the lack of corn in the market.
Once corn is harvested, feedgrain prices will fall. With all the northern hemisphere wheat exporters well-stocked, it could be a winter of intense pressure to both price and move wheat.