Prospects remain positive for wheat market

Current estimates of large global ending stocks may not be telling the entire story, a market analyst cautioned last week

The wheat market outlook is decent despite a forecast for record world ending stocks of the crop, says an analyst.

Remove China’s stocks from the picture and global stocks are the lowest they have been since 2014-15.

“We’re not swimming in wheat,” Chuck Penner, analyst with LeftField Commodity Research, told farmers attending his CropSphere presentation.

As well, China is suddenly starting to import more wheat, which makes no sense if its stocks are as high as statisticians suggest.

One of the most encouraging developments for the wheat market is the small 2019-20 United States hard red winter (HRW) wheat and soft red winter (SRW) wheat crops.

The SRW crop is particularly small and that is driving up Chicago wheat prices to the point where they are at par or even above Minneapolis prices.

Canada produced the second largest wheat crop in recent history but less than half of the crop is No. 2 or better.

Spring wheat basis levels are starting to climb in North Dakota as the U.S. runs out of exportable supplies of the crop. That will eventually lead to increased shipments of Canadian spring wheat into the U.S., bolstering basis levels in Western Canada.

The next big potential market mover will be the condition of Ukraine’s winter wheat crop. It has been dry and warm in that country, causing some regrowth. A killing frost could cause serious damage if the crop hasn’t properly hardened off.

Penner anticipates firming spring wheat futures prices as gains in Kansas and Chicago futures eventually pull up Minneapolis futures.

He is even more excited about durum prospects.

“I am bullish on durum and actually, quite strongly bullish,” he told growers.

Canadian exports are way ahead of last year despite reduced production of the crop and some significant quality challenges.

That will drive down ending stocks. Stocks are also expected to fall in the European Union and the U.S.

“If you think our pace of exports has been strong so far this year, it has just been flying out the door for the U.S.,” said Penner.

He expects a significant increase in Canadian durum acres and a modest bounce in the EU in 2020.

Canada’s barley supplies have gone from tight in 2018-19 to comfortable in 2019-20 but the price outlook is flat due to some changing dynamics in the feed sector.

Feedlots in Western Canada are expected to import 1.2 million tonnes of corn compared to 2.75 million tonnes last year because corn is selling at a $50 per tonne premium to feed barley.

China’s overall barley imports are down but Canada is getting a larger share of that business. Growers may see bids pop by 25 cents a bushel when exporters are filling trains for shipment to China and those will be good sales opportunities.

Feed barley prices in southern Alberta fell from a summer high of $270 per tonne to $190 per tonne by October. Penner is surprised that prices have since bumped back up to $230 per tonne.

He doesn’t expect prices to move much higher because they have eclipsed feed wheat prices.

Canadian oat farmers harvested the biggest crop in 10 years but crop quality is poor and carry-in from the previous year was small.

Penner is forecasting an increase in exports to the U.S. because American farmers harvested a small crop and millers had almost no supplies to start 2019-20.

Canadian oats are also increasingly finding their way to markets like Mexico, South Africa and the Middle East.

Export potential is being somewhat constrained by a big rebound in Scandinavian oat production.

Penner believes oat prices will continue to firm into spring, with some $4 per bu. bids already available in southern Manitoba.

But he worries about new crop prices because Canadian farmers are expected to increase acres by about 14 percent this spring.

“It sets up the possibility that we can get very heavy on oat supplies next year,” he said.

That’s why new crop bids in the $3 to $3.50 range look attractive to him.

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