The second half of the 2019-20 marketing campaign is shaping up to be a good one for wheat, says an analyst.
“The demand for North American wheat will be probably fairly strong here,” said Bruce Burnett, analyst with MarketsFarm.
“We’re going to see export shipments pick up.”
Shipments are already decent with 6.1 million tonnes exported through week 19 compared to 6.9 million tonnes a year ago despite the delayed harvest, according to Canadian Grain Commission data.
Burnett’s optimism for the second half of the year largely stems from an anticipated slowdown in Black Sea exports.
Ukraine has shipped out 71 percent of its exportable wheat supplies compared to 45 percent at the same time last year, according to a report by S&P Global Platts.
Ukraine is the largest supplier of Black Sea wheat into Southeast Asia.
There are also signs that Russia is running out of exportable supplies. There has been a “sharp rise” in Russian wheat prices since September and S&P expects that trend to continue into the second half of 2019-20.
Burnett said the Russian wheat price chart looks similar to last year’s chart, except prices topped out around this time last year while they continue to rise this year.
“That makes (Russian) wheat less competitive into the Asian basin,” he said.
Russia’s agriculture minister said he is considering a new system for restricting wheat exports.
Australia could usually be counted on to fill the Black Sea void in Asian markets but it has had a disastrous year. It is harvesting the smallest crop in more than a decade due to a devastating drought.
S&P estimates Australia will have a seven to eight million tonne export program, which is below the United States Department of Agriculture’s estimate of nine million tonnes. That is a fraction of the record of 24.7 million tonnes set in 2011-12.
Argentina’s wheat harvest was 92 percent complete as of Jan. 2, according to Bolsa de Cereals. The country also experienced drought, although nowhere near as bad as Australia’s.
Bolsa de Cereals is forecasting 18.5 million tonnes of production, slightly below the USDA’s estimate of 19 million tonnes. There are also reports of some quality damage due to harvest rains.
The bigger factor influencing Argentina’s exports might be the policies of newly elected president Alberto Fernandez.
He immediately raised wheat export taxes to 12 percent from seven percent. Export license applications for wheat have tumbled since the government implemented the higher tax, according to a report by U.S. Wheat Associates.
Burnett said a rapidly depreciating peso combined with hyper-inflation will also influence how much wheat Argentina’s farmers bring to market.
“Farmers tend to hold onto their grain because it’s a hard asset and will meter it out more slowly into the marketplace,” he said.
Argentina sells soft red wheat similar to European Union wheat into the Mercosur market and the Middle East. It also sells wheat to Asia.
Burnett said the reduced exporting potential of Ukraine, Russia, Australia and Argentina means that Asian markets should be wide open for North American wheat.
Canada’s export program is typically strongest in the post-harvest period, tails off around spring seeding and then picks up again at the end of the year.
Due to the late harvest and the expectation for solid demand from wheat importers in Asia, he expects this year’s program to remain strong from January through July.
Burnett thinks wheat exports will exceed Agriculture Canada’s forecast of 18.8 million tonnes but not by a massive amount unless there are problems with new crop seeding in the spring of 2020.
