Anticipated sales are more than double country’s previous five-year average, and Canada has been the main beneficiary
Spring wheat futures and cash prices are likely to rally in the coming months, says an industry observer.
Bruce Burnett, analyst with MarketsFarm, is forecasting a 50 cent U.S. increase in Minneapolis futures values and a 35 to 45 cent Canadian appreciation in western Canadian cash prices.
Those numbers could shoot higher if weather problems continue for winter wheat crops in the United States and Russia.
Spring wheat futures prices have been stagnant in 2020-21 because the U.S. market is well supplied and is having difficulty exporting wheat due to overwhelming Chinese demand for U.S. soybeans and corn.
Canadian cash prices have fared better due to strong early-season export demand for the commodity.
“Prices probably can continue to improve here until we see the new crop arrival,” said Burnett.
He can see cash prices climbing to the high-C$7 level in Alberta and the low-$7 mark in Saskatchewan.
Canada exported 7.02 million tonnes of bulk wheat through week 18 of the crop year, which is 1.23 million tonnes ahead of last year’s pace.
Agriculture Canada forecasts 19.45 million tonnes of wheat exports for the entire year, 322,000 tonnes more than last year.
Burnett thinks it will be closer to one million tonnes more, which means ending stocks will be a lot closer to last year’s 4.76 million tonne level than the 5.5 million tonnes Agriculture Canada forecasts.
Statistics Canada has export data broken out by country through the end of October.
China has been Canada’s top customer for those first three months of 2020-21, importing 745,437 tonnes, up from 279,042 tonnes the same period a year ago.
The next biggest markets are Indonesia and Japan.
The U.S. Department of Agriculture forecasts that China will be the world’s third largest importer this year, buying 8.5 million tonnes of wheat. Egypt will once again top the list, followed by Indonesia.
China’s anticipated purchase volumes are more than double its previous five-year average and Canada has been the main beneficiary of its growing appetite for the crop.
Burnett anticipates China will end the year as Canada’s top customer primarily because it is in the market for good quality, high protein wheat and Canada has an abundance to offer this year.
The other main reason for Canada’s good fortune is that the U.S. is having a hard time meeting China’s wheat demand because its grain-handling system is plugged with soybeans and corn heading to that market.
The U.S. sold 29.7 million tonnes of soybeans to China as of Nov. 26, nearly double the previous five-year average.
Corn sales were 11.2 million tonnes, obliterating the previous five-year average of 60,000 tonnes for that time of year.
U.S. Wheat Associates (USW) reports that there should be more export elevation availability in the Pacific Northwest and Gulf of Mexico starting in March when China shifts to buying Brazilian soybeans.
Traders told USW that the wheat export basis will “lighten up” from April forward making U.S. wheat more competitive in China and other markets.
But Burnett pointed out that China begins harvesting its own wheat in mid-April, so it could be too late to mount much of a comeback.
The other thing working in Canada’s favour are the mounting political tensions between China and Australia.
Australia wheat production is expected to more than double in 2020-21 to 31.2 million tonnes.
The country is forecast to export 20.5 million tonnes, which again is more than double last year’s sales.
But according to ABARES, Australian sales to China could be severely restricted.
“China may impose trade restrictions on Australian wheat exports similar to those imposed on barley and other commodities,” it said in its December agricultural outlook report.
Reduced sales to China would give Australia the opportunity to sell more wheat to other markets, said ABARES.
But while La Nina resulted in vastly improved Australian yields, it adversely affected the quality of this year’s wheat.
Higher spring rainfall delayed harvest and damaged crops in parts of Queensland and New South Wales.
“A wet spring and summer are likely to result in a greater proportion of lower-protein wheat and an increased likelihood of damaged and downgraded grain,” said ABARES in its outlook.
ABARES is optimistic about world wheat prices, partially due to strong demand from China but also because of dry conditions in key winter wheat growing regions like the U.S., the European Union and Russia.
It expects an 11 percent increase in world wheat prices in 2020-21.