China boosts Canada’s early season wheat export pace

Canada exported 5.44 million tonnes of wheat in the first 15 weeks of the crop year, which is likely a record amount for this time of year, helping to keep Canada’s overall crop export pace ahead of last year.

The Canadian Grain Commission weekly statistics report showed a very strong export performance in week 15 to Nov. 11 with shipments of all crops at 1.39 million tonnes in the seven days, of which wheat contributed 453,000 tonnes.

The commission provides easy access to weekly reports going back to 2011. Last year’s accumulated wheat exports to the end of week 15 were one million tonnes less than this year. Only two other times, in 2014 (5.33 million tonnes) and 2015 (5.17 million), did wheat exports top five million at this point in the crop year.

So we are well on our way to reach the Agriculture Canada forecast of full year wheat exports of 22.3 million tonnes, up from an estimated 21.9 million last year.

As for where the wheat is going, we have to look at Statistics Canada’s trade numbers. Reports are available for only August and September, so it is too early to talk about trends for the year.

However, it is surprising to note that China so far is the largest importer of Canadian wheat, taking 365,821 tonnes, up from 120,776 tonnes in the same period the previous year. Indonesia was in second place at 362,565 tonnes. The United States was also a big buyer, taking 350,428 tonnes.

It is not unusual for China to buy Canadian wheat, but it has rarely been in the top five on an annual basis.

China is mostly self-sufficient in wheat, but there are signs that its harvest this year was smaller than expected and the quality suffered. That could be the reason for the interest in Canadian wheat. Also, Canada had a large wheat carryover, so there was ample supply to ship early in the crop year even before the harvest was complete.

Wheat production around the world this crop year has fallen back to a more normal level after a big increase the previous year, when a massive crop in Russia and a big European crop helped push global production up to a record 763 million tonnes.

This year Russia produced a more normal 70 million tonnes, down from almost 85 million tonnes last year, and the European Union is at 137.6 million, down from 151.3 million.

Australia experienced drought and is down to 17.5 million tonnes from 21.3 million last year, and so it won’t have a large surplus that it can export to China.

Global wheat production is estimated at 733.5 million tonnes, down about 30 million from last year.

So far this fall, hard red spring wheat prices in Western Canada have been $10 to $20 a tonne stronger than they were in the fall a year ago.

Last year, the wheat market here topped in early November and then fell off through the winter until the usual spring rally.

Because of the smaller crops this year, market advisers have generally suggested that prices might be stronger in the second half of the crop year.

That seems possible. Competition from Australia and Russia should fall off in the second half because of their smaller harvests. Currently the outlook for Argentina’s harvest, which is about to begin, is for a similar crop to last year, but recent heavy rain is raising worries that the quality could be damaged, so they too might have problems competing.

However, a potential drag on wheat prices is the strength of the American dollar. As it rises against other currencies it makes American wheat exports look more expensive to buyers. If U.S. sales lag, that would weigh on Chicago and Minneapolis wheat futures, which in turn would also weigh on Canadian prices, depending on how the basis performs.

So far, actual shipments and outstanding sales of all U.S. wheat classes are running about 16 percent behind last year at the same time.

Another factor that could affect wheat prices is the seeded acreage outlook.

With soybean prices depressed because of the U.S.-China trade war, the current outlook is for American farmers to seed fewer acres to soybeans and increase corn and wheat acres.

We’ll get the first official estimate of U.S. winter wheat seeding in January, and outlooks for spring wheat acreage will come later.

Overall, early thoughts are that U.S. wheat area could rise four percent from historically low levels last year. If the soy-wheat price spread becomes even worse for soy, then potentially wheat acres could rise even more.

However, if China and U.S. President Donald Trump’s administration can find a compromise to end the trade war and its tariffs, then the scenario completely changes.

But while we await a breakthrough on the trade front, the market will closely watch weekly export data to see if indeed business will shift from the Black Sea to the U.S., resulting in upward pressure on Chicago and Minneapolis futures.

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