Weak canola prices caused by the trade problems with China dominate market headlines, but wheat values in percentage terms have fallen further compared to this time last year.
Cash prices in Canada for canola are down eight to nine percent compared to the same point a year ago but hard red spring wheat is down about 16 percent.
On a daily continuation chart, Minneapolis spring wheat futures are down about 13 percent from last year at the same time.
Kansas hard winter and Chicago soft winter wheat contracts are also lower than last year and an interesting anomaly has developed with the Kansas price significantly below the Chicago price, reflecting an expected reduction in soft wheat production and an increase in hard red winter supply. Normally, the Kansas and Chicago prices track closely with Kansas a little stronger, but Chicago now has a premium of more than 30 cents a bushel.
The premium that Kansas wheat normally has over corn has shrunk to an unusually narrow margin this summer.
Wheat’s poor performance this summer is due to forecasts for a more comfortable supply of wheat this crop year.
But the story is not yet complete as the late crops in Canada and the United States face an autumn that might be cooler than normal, raising the risk of frost damage.
Last summer, wheat was a market leader. Its price rose because of the hot, dry weather in much of Europe. That slashed its wheat crop to about 137 million tonnes, down from 151 million the year before.
Price support continued as we moved into the autumn. Estimates of Russia’s wheat crop were trimmed and Australia harvested the worst crop in many years, producing only 17.3 million tonnes, down from almost 21 million the year before.
Global wheat production fell to 730.5 million tonnes, down from 761.9 million the year before and global year-end stocks at the end of 2018-19 were 275.5 million tonnes, down from 281.2 million the year before.
The situation was good for Canadian wheat exports, which reached a record 18.24 million tonnes, up about two million from the previous year, according to preliminary Canadian Grain Commission statistics.
This year, wheat crops around the world are doing much better. Even with the record heat wave in parts of Europe, wheat production is expected to recover to about 150 million tonnes, according to the August United States Department of Agriculture Supply and Demand Report. At this early point, the Australian crop is forecast to recover to 21 million tonnes.
The USDA sees the U.S. all-wheat crop at 53.9 million tonnes, up from 51.3 million last year.
Russia’s crop is pegged at 73 million tonnes, slightly less than last year but Ukraine’s crop is at 29.2 million, a little more than last year so the Black Sea region should present competition similar to the year just ended.
Canada’s wheat crop is estimated at 27.4 million tonnes, up from slightly more than 26 million tonnes last year, according to Agriculture Canada and Statistics Canada. The durum crop is estimated at 5.1 million tonnes, down from 5.75 million last year.
But the spring wheat harvest in North America is much behind normal and final production and quality is at risk from fall frost.
Spring wheat harvest was just beginning last week in the southern part of Saskatchewan. The harvest of all crops was at only two percent as of Aug. 19 compared to the five-year average of nine percent.
The U.S. spring wheat harvest stood at 16 percent as of Aug. 18 compared to the five-year average of 49 percent.
Several points in Saskatchewan already posted record low temperatures the morning of Aug. 18, with the mercury dropping slightly below the freezing point in a few isolated locations. This has raised the anxiety level.
Drew Lerner, president of World Weather in Kansas, forecasts higher-than-normal odds for cold weather to blow in from the northwest from time to time in the late summer and early fall, raising the frost risk.
Environment Canada also sees an elevated possibility for cooler-than-normal weather on the Prairies in late August and through September.
Accuweather, on the other hand, last week forecast the Prairies would see a largely warm and rain-free weather pattern in early autumn.
However, it also expects a shift in October that would bring unseasonably cold weather in the eastern Prairies.
We should also note the linkage between wheat and corn markets.
Corn fell following the August USDA report’s surprisingly large estimate of potential production. That also weighed down wheat prices.
But because of late planting, the U.S. corn crop is well behind its normal development stage.
Frost-free weather will be needed into mid-October in the eastern Midwest to bring all corn to maturity. However, the normal timing of first frost in that region is mid-October so even normal weather presents a risk.
And corn producers in North Dakota are hoping that frost does not come at the usual time of late September. If it does, they will suffer damage.
If frost does become a problem in the U.S. corn crop this fall, it would support its price, which in turn would support wheat.