Improving global winter wheat prospects and expectations for another strong export program out of the former Soviet Union will keep a lid on prices, says CWB.
“It’s very hard to see an imminent, sustainable price rally,” said Neil Townsend, director of CWB Market Research.
“We need to see significantly worse weather somewhere.”
Townsend spent the weekend touring fields in Kansas, Oklahoma and Texas, where crops had been under distress before a welcome weekend rain shower.
“A lot of the wheat crop was shorter than it should have been and even (had) some signs of stress,” he said.
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The crop was heading sooner than it should because of a lack of subsoil moisture.
“This rain is probably adding back a little bit of yield potential,” said Townsend.
CWB is forecasting 863 million bushels of hard red winter wheat production in the U.S. in 2015-16.
A good crop would be in the 900 million to one billion bushel range, but CWB’s estimate would be a vast improvement over this year’s 738 million bu. crop and the 747 million bu. produced in 2013-14.
Perhaps a bigger factor than the size of the crop is how uncompetitive U.S. wheat has become in the export arena.
“The price at which the Americans want to sell it and the farmer wants to get is just out of line with where you can get wheat from Ukraine, Russia and particularly the European Union this year,” said Townsend.
North American farmers are under the mistaken impression that winter wheat produced in Russia and Ukraine is inferior, which is an outdated notion.
“This is a good quality wheat that’s almost better and more desirable in some cases than Canadian or American wheat,” said Townsend.
It has excellent extraction rates, which is how much flour millers get out of a kernel of wheat, and it is dry wheat, so they are not paying for water.
Black Sea wheat is making inroads in markets such as Nigeria, Mexico and Peru.
There has also been stiff competition from the European Union, where countries such as Poland, Lithuania and Latvia are producing good quality, high protein wheat.
“This is going to be an uphill battle for Canada and the U.S. going forward,” he said.
The U.S. will struggle to export its hard red winter (HRW) wheat crop, which means stocks will build in 2015-16 and weigh down prices.
“That’s the big story going forward. This year’s export number for HRW is going to be fairly low.”
Wheat prices temporarily jumped last week when Saudi Arabia announced a quarterly tender for 780,000 tonnes of wheat. The market thought it would be filled in part with U.S. hard red winter wheat.
“When the prices showed up, the U.S. would not have touched that sale with a 100-foot pole,” said Townsend.
He expects continued stiff export competition from the Black Sea region despite prospects for smaller crops in Russia and Ukraine.
Russia’s winter wheat crop got off to a wretched start, but spring rain has revived crop prospects.
CWB is forecasting 55 million tonnes of Russian wheat production, down from 59 million tonnes last year.
However, exports are expected to rise to 21.5 million tonnes from 20.5 million tonnes because Russia’s slumping currency is resulting in record prices for growers.
The increase in Russia’s export program will likely be offset by a one million tonne decline in Ukrainian exports because of extensive winterkill and the loss of Crimean production.
The upshot is that the former Soviet Union’s export program will be similar to this year’s 38 million tonnes, which is a big export program and another reason for Townsend’s bearish price outlook.
It doesn’t help that the U.S. dollar shows no sign of losing steam, which has a damping effect on commodity prices.
Townsend said the only hope is for bad weather in a major wheat producing nation.
“The problem with that is it might have to be Canada,” he said.
India is having adversity with its wheat crop, but the country’s stockpiles are sufficient enough that it will not need to import product.
Everywhere else looks pretty good, including the U.S., Russia, Ukraine and one other notable production region.
“With every passing day, the European wheat crop gets closer to being more or less a made crop,” said Townsend.
Contact sean.pratt@producer.com
