Spring wheat has an artificially high price premium over winter wheat, and farmers would be wise to take advantage of that before it shrinks, says a market analyst.
“If there was a way to capture it, either on futures or cash sales, they should probably do so,” said Marlene Boersch, managing partner with Mercantile Consulting Venture.
The premium between Minneapolis and Kansas City wheat jumped to almost $2.50 per bushel in the summer of 2017 due to fears that drought would decimate spring wheat crops in Canada and the United States.
Read Also
Canola used in only quarter of Canadian biofuel
Less than one-quarter of the biodiesel and renewable diesel used in Canada in 2024 was made from canola oil feedstock
But that didn’t happen. In fact, the total supply of spring wheat in Canada and the United States was 46.1 million tonnes in 2017-18, which is almost identical to the previous year’s 46.5 million tonnes.
The price premium has shrunk to $1.92 per bu. as the market has come to grips with that reality, but that is still well above the traditional premium of $1.50 per bu.
Boersch told growers attending her wheat market outlook presentation at CropSphere 2018 that the premium will likely contract back to $1.50 by the end of this crop year, depending on factors such as seeded acreage.
One thing farmers should keep in mind the next time the market panics about a shortage of spring wheat is that there is only a handful of “pure spring wheat buyers” in the world.
Japan typically purchases five to six million tonnes of the crop annually. China takes about one million tonnes, the European Union 500,000 tonnes, the U.S. another 500,000 tonnes and Saudi Arabia about 100,000 tonnes.
That’s a total of about eight million tonnes of annual must-have demand for spring wheat. Other customers can get by using hard red winter wheat.
So when Canada and the U.S. produce 46.1 million tonnes of spring wheat, that is a far cry from not being able to service the key customers for the crop.
Boersch said all wheat markets continue to be weighed down by global over-production. Carryout is estimated at 249 million tonnes in 2017-18, up 20 percent over the last three years.
Russia is the main reason behind the bloated supplies. It produced an estimated 83 million tonnes of wheat in 2017, up 60 percent from the 52 million tonnes produced five years ago.
Russia is poised to become the world’s largest wheat exporter for the first time in 2017-18. The USDA expects the country to ship out 33.5 million tonnes of wheat. The next highest is the European Union at 28.5 million tonnes, followed by the U.S. at 26.5 million tonnes.
Boersch said the scary thing is Russia is just starting to gear up. The country has achieved a nine-fold increase in its grain export capacity over the past 15 years to 45 million tonnes annually.
Russia’s agriculture minister recently stated the country will be increasing its export capacity by another 50 percent within three years, according to Reuters.
Russia’s export pace usually slows by this time of year, but due to an unseasonably warm winter and unusually good rail service, it is still very active in wheat markets.
That is causing problems for competitors such as the European Union, which is eight million tonnes behind the U.S. Department of Agriculture’s projected export pace.
“Why is that important? Well, they’re getting somewhat desperate to put some of their wheat into the market against the Russians, and that has price implications when you have two major exporters fighting for market share,” said Boersch.
She is forecasting a slight increase in Canadian wheat acres this spring, largely because of declining pulse acres.
Boersch anticipates a 1.3 million tonne increase in total supply of Canadian wheat in 2018-19, but that will be partially offset by a million tonne increase in exports.
Carryout will climb to seven million tonnes, up from 6.7 million tonnes this year.
Boersch’s 2017-18 carryout is quite a bit higher than Agriculture Canada’s five million tonne estimate. That is because she believes its 17.2 million tonne export estimate is too high. She is forecasting 15.5 million tonnes based on the slow pace of shipping to date.
She said farmers should keep an eye on Russia’s yield estimates because that’s what will drive the market in 2018-19.
Boersch doesn’t think Russia will be able to match last year’s record yields. A 10 to 15 percent drop would decrease production by eight to 12.5 million tonnes. That would “change the world picture materially.”
