When viewed in isolation, the wheat market outlook is rather dreary for the coming crop year.
“What the Canadian farmer has to be super happy about is that wheat ain’t in isolation. Wheat is tied in directly with corn,” said Canadian Wheat Board market analyst Neil Townsend.
“God bless corn. God bless America.”
A report released last week by the U.S. Department of Agriculture added fuel to the already smoking hot corn market, which in turn provided strength to wheat.
It was the quarterly stocks report, rather than the much anticipated prospective plantings report, that was the real market mover.
The USDA reported corn stocks of 6.52 billion bushels on March 1, down 15 percent from the same time last year and about 170 million bu. below trade expectations, prompting a price rally to match the record highs of 2008.
The USDA already expected corn stocks to dwindle to only 18 days of supply by the end of the crop year, the tightest in 15 years. This new reduction could cut it to 14 days, the tightest ever.
The department also announced corn exports of 2.23 million tonnes for the week ending March 24, the highest weekly total in more than seven months. Traders said it was confirmation of rumoured sales to China.
Errol Anderson, an analyst with ProMarket Wire, said it’s clear that efforts to ration corn demand haven’t worked.
“The exports right now are still too brisk. They have to slow them down. In our mind, these corn prices just have to go higher.”
Townsend, who has been “unambiguously bullish” on corn for a long time, has become “super-bullish” after the release of the stocks report.
“It’s going to take a lot of good fortune for corn to cure their supply and demand balance issues in the next 12 months.”
Corn will be in for another big price rally if production problems occur this year. Townsend believes prices have not peaked and wonders why nearby futures contracts are getting all the strength.
“That December corn contract is vastly underpriced,” he said.
Canadian wheat farmers should take comfort in the tight corn outlook because feed wheat is a substitute for the crop.
“That is going to provide a very good floor (price) for wheat,” said Townsend.
Corn is protecting wheat from what would normally be a bearish outlook as world supplies continue to grow.
The crop is in good shape in Europe, the Middle East and North Africa and in very good condition in Ukraine.
The only problem area is the U.S. winter wheat crop, which is suffering the effects of drought.
Anderson said what’s happening with winter wheat in Kansas and neighbouring states will have little impact on plentiful global supplies.
Anderson said there’s an inherent risk for wheat to ride on corn’s coattails because the fundamentals don’t support today’s wheat prices.
“There is a danger, and the danger is wheat will suddenly fall, and it will, it’s just a matter of time,” he said.
The U.S. prospective plantings report added to that bearish sentiment with its forecast for 14.4 million acres of spring wheat, which exceeded even the highest trade estimates.
“That was a big surprise,”Townsend said.
He doubts farmers in eastern North Dakota will choose wheat over corn and soybeans, considering the disease challenges and less liquid market for the crop. His guess is that number will drop back to 13.8 million acres.
Chuck Penner, president of LeftField Commodity Research, said it is hard to doubt the findings of a survey of more than 85,000 U.S. farmers.
He believes any reduction in the wheat number will come from the 41.2 million acres of winter wheat, some of which is in terrible condition.
“(Farmers) might start ripping out those acres and putting in corn.”
For more on the USDA report visit producer.com April 7 or read about it that edition of the Western Producer.
