Wheat Market Outlook and Prices
The Wheat Market Outlook is provided by Mercantile Consulting Venture Inc.
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- World Wheat Overview:
- Wheat Market Outlook
- Primary Elevator Bids
- Grade Spreads in Canadian Dollars
- Relevant FOB Prices and Calculated Basis
- While US wheat production has been affected by drought, the US is of lesser concern to world production vs the EU, China, India, and Russia.
- World wheat supply is expected to remain stable in the coming USDA WASDE report, with Russia projected to set second consecutive wheat production record according to all reports.
- The USDA is expected to slightly reduce projections for global wheat production in upcoming WASDE report on August 10th, but global ending stocks are expected to remain relatively unchanged with only minor adjustments.
- Funds: Index Funds did some profit taking in the past week, but we don’t see them reducing the size of their long. Specs and Spec funds were big sellers of corn and wheat last week based on increased estimates of Eastern European production.
- Matif: Matif exchange in Europe closed at 163.25 which was down by 0.25 on Fridays trade, but down by 7.00 or 4.11% for the week.
- Canadian wheat:
- According to the CGC, producers delivered 315k mt of wheat into the handling system, which is down from last week’s 388k mt. Exports for week 52 were 247k mt, up from last week’s 200k mt, and down 11% (-1.8 million mt) from last year’s YTD exports.
- Elevator stocks are currently at 2.99 million mt with 1.6 million mt at primary elevators and most of the remaining inventory at port.
- The bulk of wheat inventory at port is located on the east coast with 130k mt at Thunder Bay, 596k mt at the St Lawrence, and 192k mt at Bay and Lakes. Meanwhile, the Pacific coast has only 307k mt at port, which is comparatively small.
- Producers delivered 131k mt of durum into the handling system over the past week. Durum exports during week 52 amounted to 27k mt; 4.29 million mt year-to-date. This is very close to last years year to date exports of 4.36 million mt.
- Manitoba’s harvest of winter wheat and fall rye has now begun in central regions of the province. Most of the province is reporting below normal precipitation and would benefit from additional rains. Most crop are off flower and are currently in the podding and filling stages of development.
- The weekly Saskatchewan crop progress report indicates that harvest has now begun in some southern regions of the province with reports from these regions indicating average to below average yields. Most of the province had little or no rain over the weekly reporting period with many southern regions continuing to be in drought. Topsoil moisture across the province is now reported to be 29% adequate, 41% short, and 29% very short. Crops across the province are turning quickly due to warm conditions and dry weather.
- The August 1st Alberta crop report indicates crop conditions have declined an additional 3% across Alberta. 57% of Alberta crops are now reported to be good or excellent, which is down from 60% good/excellent last week. Hot dry conditions continued in the southern and central regions of the province where crop condition ratings declined by 6% and 14% respectively. While rain is needed in both the southern and central regions, it is considered to be too late for crops in the southern region.
- The US winter wheat crop is now reported to be 88% harvested which is up from 84% last week. 15% of the US winter wheat crop is now reported to be within drought affected regions, which is up from 13% last week. The south Dakota winter wheat harvest is now reported to be 95% complete, while Montana is reported at 78% harvested as of August 4th. South Dakota and Montana winter wheat yields are reported to be good with protein being higher in the range of 12 – 13%. The average protein of the US winter wheat harvest is now reported to be 11.4% which is up from 11.3% last week. Average protein has been steadily increasing as the harvest moved northward into drought affected regions. The US spring wheat crop is now reported to be 9% harvested, which is up from 0% last week. The US spring wheat crop condition is reported to be 31% good/excellent, which is down slightly from last week’s estimates of 33% good/excellent. Meanwhile, the crop percentage rated as poor/very poor, has increased from 40% last week, to 43% this week. According to the August 1st USDA drought monitor report, 56% of US spring wheat acres lie within the drought affected regions of the northern US plains
- Australia has continued to have some rains, but the northeast region of the country is still reported to be dry and rain would benefit all regions. While last months WASDE report lowered Australian production estimates to 23.5 million mt, Australian wheat production is now thought to be in the range of 20 million mt and thought to be getting smaller due to dryness.
- According to a July 26th USDA gain report, Argentine wheat production is projected at16.65 million mt due to lower seeded acreage. About 90% of Argentine wheat has been planted, but 100,000-150,000 hectares may not be planted due to excess rain. Half of Argentine exports are expected to ship to Brazil which will likely increase its imports due to excess rain followed by harsh frosts.
- While France and Spain have had a dry season and disappointing yields, overall projections for the European wheat crop are still thought to be higher vs last year with some northern regions of Europe reporting persistent showers. Harvest of European winter wheat is now estimated to be about 50% complete.
Black Sea wheat:
- Russian wheat yields and crop estimates continue to rise and a pro-rata of Russia’s current yield increase would argue for a crop close to 80 million mt vs the USDA’s last month estimate of 72 million mt. The trade seems increasingly comfortable with a 75+ million mt number which would leave an exportable surplus of over 35 million mt. The Black Sea ended the week lower with September Russian 12.5 paper buyable down to $195 and with most of the selling interest in the past week being in the 11.5 pro and feed wheat markets. 11.5 pro closed the week at a $15 discount to 12.5 pro, and feed wheat closing a further $13 less.
Significant events this past week
- The stats Canada jobs report on Friday revealed the lowest unemployment rate in 9 years which is a sign of current economic strength. While the value of the Canadian dollar has dropped slightly against the US dollar over the week (currently at .7908 and down by 0.01385 for the week) the recent jobs report does lend some strength to the Canadian dollar against the US greenback. However, the August 4th US jobs report indicates that US unemployment also fell to 4.3% from last months 4.4%. While US unemployment was already at 4.3% in May, this was a 16-year low and it’s likely that both Canada and the US will continue with slow interest rate hikes to steady economic growth and combat inflation. Any hike in interest rates will increase the value of the currency in that country and will make that countries grain exports more expensive on the world market.
- Turkish and Russian wheat crops are both reported to be larger then previous estimates, while north American wheat seems overpriced on the world market. Protein still remains at a significant premium and those with high protein wheat are not selling. North American wheat is currently too expensive and is not competitive on the world market, while Minnapolis HRS is also still overvalued vs HRW. We expect the spread between spring and winter wheat to narrow in the coming 1-2 months as spring wheat harvest nears completion. The USDA’s world supply and demand estimate report will be released on August 10th and will be closely watched. Expectations are that the USDA will follow the lead of other agencies and will slightly reduce estimates for world wheat production, while keeping estimates for global ending wheat stocks largely unchanged.
Cash wheat is current in the range of $7.17- $7.90 across the praries for 2 CWRS 13.0. Given that there is adequate global supply, and the probabitly that there is little to no real shortage of high protein wheat, we expect hard red spring wheat to trade steady to lower in the coming weeeks.
Primary elevator bids data source: PDQ
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