Wheat Market Outlook and Prices

The Wheat Market Outlook is provided by Mercantile Consulting Venture Inc.

 
 

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World Wheat Overview

 

 USDA June 11/’19 World Wheat Production and Use (Graph Source: US Wheat Associates)

World Production and Use.jpg
 
  • Trade was quite through the week as the market positioned for today’s (12:00 PM ET) USDA supply and demand report.

  • The main factor that will drive wheat higher or lower is the USDA’s numbers for corn. Average trade guesses for corn is for 88 mln planted acres, 80 mln harvested acres, a 165 bpa yield and 13.2 bln bu worth of production. The range of these estimates are very wide. The U of I is estimating 85-86 mln planted acres and yield models support a 163 bpa number.

  • In their June 11 report, the USDA put world wheat production and consumption at record levels at 771 mln and 760 mln mt respectively. Wheat trade was expected to be 183 mln mt. With a smaller than expected Russian crop, it is likely that the USDA will lower global supply some, but as exports from Russia have been slow and demand has been scarce, they could lower global demand an equal or greater amount than their change in production.

  • Trade is expecting that wheat carry-out in the US will be 999 mln bu vs the USDA’s 1 bln bu. Current US sales are strong and could prompt the USDA to rise US export expectations.

Global wheat production and trade

There is a lot of competition in the wheat markets as wheat is produced around the world. Below is a brief synopsis on last week’s market events in the major wheat origins.

  • Futures: Sept '19 contract Chicago winter wheat closed at 499-4, up 1-0 cents in Friday’s trade, up 7-6 cents for the week.

  • Sept ‘19 contract Kansas hard red winter wheat closed down 1-4 cents at 417-0, down 5-6 cents for the week.

  • Minneapolis Sept '19 contract hard red spring wheat closed at 519-6, down 0-6 cents in Friday’s trade, down 3-0 cents for the week, while Dec ’19 hard red spring wheat closed at 530-6, down 1-2 cents for the day, down 4-0 cents for the week.

Canadian Wheat:

  • The CGC released the data for the final shipping week (week 52) of the Canadian 2018/19 marketing year. In week 52, Canadian producers delivered 450.8k mt of wheat (excl. durum) into the grain handling system for a grand total of 21.18 mln mt, up 13% from last year. Exports through the week were a large, 480.9k mt, for a season total of 18.24 mln mt, up 12% (2.01 mln mt) from last year but a whole 1 mln mt below AAFC’s 19.2 mln mt estimate.

 
Cumulative Wheat Exports.jpg
Top Importers of Canadian Wheat.jpg
 
  • According to the Canadian International Merchandise Trade Database, both Indonesia and China have imported 2.1 mln mt of Canadian wheat as of June 2019. While this is a 43% (621.4k mt) increase for China y/y it is a 79% (928.3k mt) y/y increase for Indonesia. This has been a welcome occurrence, as without these two very large increases, Canadian wheat exports would have struggled significantly as Japan, the US, Mexico and Ecuador have all had significant decreases in Cdn. wheat imports y/y. The largest of these decreases being the US who has imported just 66% of last year’s YTD total. A 751.6k mt decrease from last year.

  • Canadian producers delivered 193.5k mt of durum into the Canadian grain handling system during week 52. Total deliveries are up 15% from last year at 4.78 mln mt. Exports during the week were 67.3k mt for a season total of 4.52 mln mt, up 13% (532.2k mt) from last year, just surpassing the AAFC’s estimate of 4.5 mln mt.

 
Cumulative Durum Exports.jpg
 
  • Through the end of June, Algeria continues to be the largest importer of Canadian durum, followed by Morocco and the US. Exports to Algeria and Morocco are 5% and 7% higher y/y respectively while the US has only imported 82% of the amount has last YTD. The US is having a strong 2019 crop which will cause US imports to be down again in 2019/20. Italy’s appetite for Canadian durum may be slowing returning. The country has imported 60% (197k mt) more durum this year over last, making us cautiously optimistic.

Top Importers of Canadian Durum.jpg
  • With little rain in the past 2-3 weeks, soil moisture in the Cdn. Prairies is deteriorating. The SK crop report indicated that 39% (most of the SW region) of the cropping region is short on soil moisture (up from 22% last week). Northern AB has seen excessive rainfall that is hurting crops while the S part of the province is too dry. Spring wheat conditions in AB fell 3.3% over the past two weeks to 71.7% G/E (vs 64.2% last year). Early yield estimates for the AB spring wheat crop are 49.3 pba vs 45.8 bpa this time last year. Excessive dryness in Alberta’s South is hurting their durum crop as AB Ag is estimating durum crop yields to be 28.8 bpa vs last year’s 33.3 bpa estimate.

  • Harvest has begun in MB and parts of SK, so far, yields have been average-slightly below average.

US Wheat

  • The NASS crop report left US spring wheat conditions unchanged at 73% G/E vs 74% last year. Spring wheat harvest began and progressed 2% last week (vs 12% last year and 14% avg.).

  • The Northern US durum crop is nearly 100% headed and 50% of the crop has turned color.

  • Winter wheat harvest progressed 7% over the week and is 82% complete (89% last year and 92% avg.).

 

Australian wheat:

  • Australia will receive more rain, but farmers remain concerned about the long-term forecast. New crop farmer sales are just 15% vs the more typical 30% for this time of year. Private estimates of the Aussie crop are falling below the USDA’s 21 mln mt.

 

Argentine wheat:

  • Planting in Argentina is complete having covered 6.6 mln ha, up 1.3% from last year and the second highest in 30 years. Crop ratings were up 2% on the week with G/E at 54% vs 47% last year. 

 

EU wheat:

  • Harvest in Germany, the Baltic, Scandinavia and the UK has been slow because of rain. The rest of Europe is essentially complete.

  • France’s Farm Ministry raised estimates for soft wheat production from 37 mln mt in July to 38.2 mln mt. If realized, this would be 12% higher than last year.

Black Sea wheat:

  • Saudi Arabia raised its tolerance for bug damage from 0% to 0.5%, which effectively allows imports of Russian and Romanian wheat. Saudi is an annual 3-3.5 mln mt market that is usually served by German and Baltic wheat. Freight spreads between the EU and Black Sea are now even more important as they will dictate who gets the demand. The current German-Russian freight spread is $5.

  • Harvest data in Russia continues to normalize with last year. Yields are just -0.5% lower (vs USDA’s 3.7% increase) which argues a 72-74 mln mt crop (USDA’s 74.2 mln mt). UkrAgroConsult lowered their estimate to 74.5-75 mln mt vs 76.7 mln mt previously. The current range of estimates for the Russian crop is 71.7 mln mt to 81.7 mln mt.

Significant purchases/ trades:   

  • Egypt (GASC) bought 415,000 tonnes of Black Sea wheat for 5-15 Sep at an average $219 C&F; Saudi and the UAE have provided 540,000 tonnes of Black Sea/FSU wheat to Sudan (about 3 months of demand); Saudi relaxed its quality specs on bug damage.

  • USA inspections were 395,000 tonnes (season total 155 myn bushels up 26%), sales were 488,000 tonnes for a season total 345 myn bushels, up 25% on last year (USDA up 1.5%).


Wheat Market Outlook

Significant Events

  • China announced that it will suspend all purchases of US Ag products. The move comes days after President Trump announced another 10% levy on $300 bln of Chinese goods.

  • Morocco’s Agriculture Ministry recently reduced the country’ grains harvest forecast from 6.10 MMT in April to 5.20 MMT due to summer rainfall shortages. If realized, Moroccan production would fall 49% from 2018/19 levels. Moroccan farmers are now expected to harvest 2.68 MMT of soft (non-durum) wheat and 1.34 MMT of durum wheat in 2019. According to USDA, Moroccan wheat imports are expected to reach 4.80 MMT in 2018/19, 17% above last year’s levels and 11% higher than the 5-year average of 4.34 MMT, if realized.

  • Saudi Arabia raised its tolerance for bug damage from 0% to 0.5%, which effectively allows imports of Russian and Romanian wheat. Saudi is an annual 3-3.5 mln mt market that is usually served by German and Baltic wheat. Freight spreads between the EU and Black Sea are now even more important as they will dictate who gets the demand. The current German-Russian freight spread is $5.

  • Weather around the world:

    • USA: Some showers but mostly ongoing dryness with temperatures trending above normal. Canada: Warm with near normal precipitation. Europe: Warm except France, dry except Germany, Scandinavia and the UK. Black Sea: Warm and dry. South America: Dry and warm in Brazil, dry and cold in Argentina. Australia: Dry except for a few very light showers in the South East.

Outlook

The trade does not expect a bullish wheat report Today and world wheat market still lacks an independent demand driver. Prices will be determined upon what the USDA predicts on corn and soybeans acres/yields. US wheat futures were mixed, but of note is the Kansas City record 83 cent discount to Chicago and its 7-cent premium to corn. In our view, Kansas City wheat is undervalued compared to corn.


Primary Elevator Bids

 
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Primary elevator bids data source: PDQ


Grade Spreads in Canadian Dollars

Grade Spreads August 12.jpg


Relevant FOB Prices and Calculated Basis

 
FOB and Basis August 12.jpg