Wheat Market Outlook and Prices

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Wheat Market Outlook – August 12, 2024

Update on Indonesia

• Indonesia is usually the second largest importer of Canadian wheat. Since the 2020/2021 season, Indonesia has imported a marketing year volume anywhere from 1.2 million mt to 2.3 million mt of Canadian wheat. Currently, exports to Indonesia have surpassed 2.2 million mt to date (Aug.-June), up 32 percent from last year.
• Because Indonesia does not grow any of its own wheat, the country is entirely reliant on wheat imports. Most of the wheat imported is for human consumption as the feed market is protected to preserve local corn growers. However, high corn prices in 2023/2024 prompted the government to authorize 0.5-1.0 million mt of wheat imports for local poultry farms. This caused wheat imports to rise 33 percent to 12.6 million mt in the 2023/2024 season. Corn production is expected to improve in the coming year, which will likely bring wheat imports down to 12 million mt.
• Australia supplies roughly 40 percent of Indonesia’s total wheat imports while Canada maintains roughly 20 percent of the market. Cheap Russian and Argentinian wheat make up 10-15 percent of total wheat imports while trade barriers have imports from the U.S. limited to less than five percent.
• Competition for the Indonesian market will be stiff in the 2024/2025 season. With China importing less wheat this year, both Australia and Canada will be working hard to expand other markets.

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:

• 2024 contract Chicago winter wheat closed at 542-4, up 5-0 cents on Friday, up 3-4 cents on the week.
• 2024 contract Kansas hard red winter wheat closed at 554-0, up 2-4 cents on Friday, down 5-6 cents on the week.
• 2024 Minneapolis hard red spring wheat closed at 589-6, down 4-4 cents on Friday, down 5-2 cents on the week.
• S. wheat futures are currently trading 7-10 cents lower in anticipation of today’s USDA report.

Canadian Wheat

Some winter wheat and fall rye have been harvested in Manitoba. The yields we have heard are fantastic. Some spring wheat in south central Manitoba will likely be harvested this week. The condition of the Saskatchewan spring wheat crop was not updated again last week. Top-soil moisture conditions in Saskatchewan fell another 12 points over the week with just 29 percent of the crop land considered to have “adequate” soil moisture. Spring wheat conditions in Alberta fell four points over the week to 51 percent Gd/Ex. Meanwhile, widespread rain and thunderstorms brought relief extending from the central region north. The rain improved overall moisture conditions by two points to 35 percent Gd/Ex.

• Canadian non-durum wheat exports in June were 1.6 million mt. Indonesia was the largest customer at 240.7k mt, for a season total of 2.2 million mt, up 32 percent from the same time last season. China remains the largest customer year-to-date at 2.9 million mt, up six percent from last year. China has been slowing the pace of imports over the past two months.

• The final, week 52, export data was released last week. Exports were said to be 413.7k mt, for a season total of 21.15 million mt, up eight percent from last year, and 750k mt more than the AAFC was expecting. The visible supply at the end of July was 1.85 million mt, meaning (if the AAFC’s 2.35 million mt carry-out estimate is correct) farmers have 510k mt of non-durum wheat remaining on farm as of July 31st (vs 676k mt last year).

Durum:

• There was no update on durum conditions in Alberta or Saskatchewan durum crops last week. Continued dryness in SK has likely further deteriorated conditions while the Alta. crop may have improved slightly. Overall, the yield ideas we have heard are strong.
• Canada exported 5,000 mt of durum in June. Most of the exports went to Morocco and the U.S. Durum exports seasonally decline into the fall.

• Durum exports in week 52 were 68k mt, for a season total of 3.45 million mt. This is 150k mt more than the AAFC was expecting. The total visible supply is 321.7k mt. So, if the AAFC’s 350k mt ending stocks number is right, farmers have just 28.3k mt of durum in their bins compared to 125k mt last year. Farm stocks are likely closer to 80k mt in our opinion. Regardless, the carry-out is very low.

Notes from the European Union:

World durum production is forecast at a six-year high of 35.1 million tonnes. The increase is largely due to larger crop in Canada and the U.S. This is partially offset by the EU harvest being lowered by 0.3 million tonnes to 6.6 million tonnes. Mexico’s crop was cut by 0.5 million tonnes to 1.5 million tonnes. The outlook is unchanged for Turkey. Due to larger availabilities, consumption is expected to increase to 34.4 million tonnes of food use, potentially a new record. Stocks are forecast to rebound to 5.5 million tonnes (+14.6 percent), a below average level. Boosted by potentially record imports into North Africa (3.8 million tonnes), world trade is seen at a five-year high of 9.5 million tonnes (+1.8 percent y/y). The Canadian export forecast was lifted by 0.3 million tonnes to 5.0 million tonnes (+47.1 percent y/y), while EU imports were raised 0.2 million tonnes to 2.7 million tonnes (-3.6 percent y/y).

• Small old crop carry-out is being met with a large supply. We are 45 percent sold and would hold sales for now. We are 45 percent sold new crop durum and would hold additional sales for now.

U.S. Wheat:

• S. wheat futures finished the week mixed. Good export demand and poor harvest results in the EU supported soft wheat. Meanwhile, a large U.S. harvest and strong spring wheat crop pressured hard wheat markets.
• The U.S. winter wheat harvest advanced to 88 percent complete. Protein levels of the HRW crop are generally lower than last year at 13.6 percent (vs 14.4 percent last year), while the falling number is better than last year at 363 seconds. For SRW, the average protein level is 11 percent versus 10.6 percent last year and the falling number is 316 seconds compared to 320 seconds last year.
• The U.S. spring wheat harvest covered rose 5 percent over the week to 6 percent complete.
• The durum harvest in Montana rose to 8 percent complete. Crops remain in strong condition in North Dakota and Montana with strong yields expected.
• Weekly U.S. export sales were at the low end of expectations at 274k mt. Total commitments are 316 million bushels, up 34 percent from last year. It is still possible to reach the USDA’s 825-million-bushel export estimate, but the sales pace will need to improve. The USDA is expected to leave its export estimate unchanged.
• The August USDA/WASDE report is scheduled to be released today. The average trade guess is that the USDA will increase U.S. wheat production by six million bushels from last month to 2.014 billion bushels. Most of the increase in production is expected in the winter wheat classes, while spring wheat production is expected to rise by only one million bushels to 579 million bushels. Durum production is expected to be unchanged at 89 million bushels. U.S. wheat ending stocks are expected to rise from 856 million bushels to 861 million bushels, while global stocks are expected to tighten by 200k mt to 257.0 million mt.
• S. HRS for Sept. 2024 was valued at $251.00mt FOB PNW (up $2.00/mt from last week), FOB Gulf HRW 11/12.5 pro is valued at $252.00/mt (up $2.00/mt from last week).

Australian Wheat:

• Moisture conditions in Australia remain favorable to crop growth. This prompted Australian futures prices to close at a five-month low.
• FOB values in Australia: Sept. 2024 APW, WA is valued at $280.00/mt (unchanged from last week).

Argentine Wheat:

• Rain in eastern Argentina brought relief to the wheat crops there. More rain will be needed. Meanwhile, the drought deepened in the west.
• FOB Argentine wheat (11.5 percent pro) for Sept. 2024 was valued at $262.00/mt (up $2.00/mt from last week).

EU Wheat:

• Strategie Grains made sharp revisions to its EU wheat production estimate given the lower-than-expected yields in France and Germany. The consultancy reduced its soft wheat production estimate from 122.3 million mt to 116.5 million mt. This reflects an 8.4 percent decrease from last year. Strategy Grains believes that EU soft wheat exports will fall by 6.7 million mt from last year to 26.9 million mt.
• The condition of the French wheat crop fell another two points over the week to 48 percent Gd/Ex. The French wheat harvest advanced by 13 percent to 88 percent complete.
• The French Ag Ministry cut its estimate for the French wheat crop by 3.3 million mt to 26.3 million mt. This is roughly 25 percent less than last year, and the lowest volume in 40 years.
• EU FOB prices: 2024 French 11 pro wheat closed at $244.00/mt (down $1.00/mt from last week); Sept. 2024 German 12.5 pro wheat closed at $241.00 (down $1.00/mt from last week); Sept. 2024 Baltic 12.5 pro wheat closed at $234.00/mt (Down $2.00/mt from last week).

Black Sea Wheat:

• Sovecon decreased its estimate for Russia’s wheat crop from 84.7 million mt to 82.9 million mt. Meanwhile, IKAR raised its estimate from 83.2 million mt to 83.8 million mt. IKAR also raised its export estimate by 0.5 million mt to 44.5 million mt, down 17 percent (9 million mt) from last year.
• We have Russian FOB values for 12.5 percent protein wheat for Sept. 2024 at $220.00/mt (up $3.00/mt from last week).

Significant purchases/ trades:

• Algeria bought 600,000-700,000 mt of October wheat at $250.50-$252.00/mt on a C&F basis. The wheat was optional origin, but the price suggests that it was likely Russian. The price of the tender was more than the $241-$244/mt that they paid in July.
• GASC (Egypt) issued a massive, 3.8 million mt, tender. The tender, which is still in progress, is for delivery during various periods between October 2024 and April 2025. The tender has a 270-day letter of credit requirement, which will largely exclude North American wheat.
• Southern wheat sales were at the low end of expectations at 274k mt. Total commitments are up 34 percent from last year.

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Significant events over the past week

• The Commitment of Traders report showed speculative funds in Chicago futures trimmed their net short by 6,284 contracts to 71,332 contracts as of Aug. 6, 2024. Speculative traders also continued to trim their short position in corn.
• Ahead of the USDA report, most analysts are expecting the USDA will increase its estimate for the average U.S. corn yield to a further record of 182 bushels per acre. However, lower seeded area may cause corn production to be only slightly higher.

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Mercantile’s Weekly Outlook:

According to Mercantile, Algeria and Egyptian demand give a bit of support, as well as smaller production in Europe. Some of this will be offset with large crops in Canada, the U.S., and the southern hemisphere, but there is a chance that we are approaching a floor in the wheat market. The USDA report is expected to show larger wheat production in the U.S., but smaller global supply. The markets remain under pressure from harvests. Mercantile expects futures markets to remain weak nearby but will improve when crops are in the bin.

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Canadian Primary Elevator Bids, in Canadian Dollars per Bu and per MILLION MT

Grade Spreads, in Canadian Dollars per Bu and per MILLION MT

Relevant FOB Prices and calculated Basis, U.S. & Canadian Dollars per MT

CLICK HERE to learn what the basis is and why it is important (FOB Wheat Prices and Export Basis Calculation PDF).

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Disclaimer: The content of the Wheat Market Outlook Report and audio summary are the views and opinions of Mercantile Consulting and do not necessarily reflect the views and opinions of the Saskatchewan Wheat Development Commission.

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