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
- June 13th USDA Wheat Outlook:
- Winter wheat yield projections for the global 2017/18 crop are up slightly in the June 13th USDA wheat outlook report. New projections are boosting 2017/2018 estimates on projections for higher global production. Russia, Argentina, and Turkey have all increased production prospects.
- In the US, increased carry-in from the 2016/2017 crop year combined with expanded projected imports have resulted in the ending stock estimates for the 2017/2018 crop year being revised higher by 10.8 million bushels to 924.3 million bushels.
- The US wheat stocks to use ratio for the projected crop year remains lower vs the 2016/2017 crop year and close to the 5 year average of 0.39 (see graph below).
Global wheat and trade:
Below is a brief synopsis on this week’s market events in the major wheat origins
- Futures: Chicago HRW wheat closed the week up 12 cents on Friday at US$4.66 per bushel, up 20 cents for week. Spring wheat has continued to trade higher over the past week with prices climbing to unexpected levels. Minnapolis hard red spring closed up 10 cents on Fridays trade at US$6.43 per bushel, up 35 cents for the week. The drought in the northern US plains still remains the driving factor of the recent rally. The June 19th USDA crop progress report, as well as the June 20th US drought monitor will both be heavily scrutinized in the coming week.
- Funds: In the past week speculative hedge funds have significantly reduced their wheat position and have bought an estimated 2.3 million mt between June 13th and 16th. This was a major driving factor in the recent price rally. However, Specs and Speculative Funds currently hold a net short position of approximately 12 million mt.
- Matif: EU futures started lower, but closed sharply higher on a progressively hotter and drier forecast for Western Europe, lower production forecasts France and a weaker €uro.
- According to the CGC, producers delivered 525.2 mt of wheat into the handling system, which is up from last week’s 490.5 mt. Exports for week 45 were 334k mt, up from last week’s 244k mt, and down 12.41% (-1.748 million mt) from last year’s YTD exports.
- Elevator stocks are currently at 2.6 million mt with 1.3 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 280k mt at Thunder Bay, 546k mt at the St Lawrence, and 110k mt at Bay and Lakes. Meanwhile, the Pacific coast has only 263k mt at port, which is comparatively small.
- Producers delivered 123k mt of durum into the handling system over the past week. Durum exports during week 45 amounted to 119k mt; 3.7 million mt year-to-date. This is 5.9% or 131k mt lower than last year-to-date.
- The June 13th Alberta crop progress report which was released on June 16th, indicates that most of the province received at least 10 mm of rain with some regions receiving 20 – 30 mm. Wheat seeding in Alberta is now estimated at 96% complete with approximately 86% of crops emerged. Provincially, crop growing conditions are now rated as 80% good to excellent which is above the 5 – year average of 73%.
- Saskatchewan spring wheat was reported to be 75% in good to excellent condition, 22% fair condition, and 3% poor condition. 22% of Saskatchewan spring cereals are reported at normal crop development, 5% ahead of normal, but 33% behind normal.
- Crop conditions in Manitoba have improved significantly over the past week with many of the dryer regions of the province receiving much needed rainfall. The north-western region of the province continues to lag due to wetter spring conditions and later planting, but most crops are now emerged and weed control is wrapping up in most regions. Cool wet conditions have prevailed over much of the province in the past week and the forecast indicates that this trend might continue into next week.
Global wheat production and trade:
Below is a brief synopsis on this week’s market events in the major wheat origins.
World Vegetation Health Index (June 5th – June 11, US NOAA)
- The weekly USDA crop progress report on June 12th rated the US winter wheat crop at 92% headed. Exactly 50% of the US winter wheat crop is now rated as good or excellent, which is down by 1% from last week and down by 11% from lasts years YTD estimates. Winter wheat yield gains have been reported in Colorado and Kansas, up 3 and 2 bushels per acre respectively. Overall US winter wheat yields are estimated at 48.9 bushels per acre, which is up slightly from the 48.8 bushels forecasted in May. Spring wheat in the US is now rated as 95% emerged, which is ahead of the 5-year average of 92%. Only 45% of the US spring wheat crop is now rated as good or excellent, which is down significantly from last week’s estimates of 55% good/excellent, mostly due to drought in the northern US plains.
- Dry weather continues across much of Australia which is further reducing topsoil moisture and negatively impacting the outlook for winter grain crops. The most affected regions appear to be in Western Australia which is a major wheat growing region, while most of southern Australia, Victoria, and New South Wales appear to be unaffected.
- However, for now, ABARE (Australian Stats agency) actually raised the Aussie crop 200k mt to 24.2 million mt.
- Dry weather in Argentina has supported corn and oilseed harvesting in most major production areas.
- Argentine Fob prices rose US$3/mt on the rapid pace of exports and higher world market, whilst BAGE (Buenos Aires Grain Exchange) put plantings at 37% complete, up 15% on the week and well ahead of last year’s 30%. This is despite the higher expected total area. Farmer sales of the current crop rose to 13.6 million mt against just 7.5 million mt last year
- EU wheat:
- Drought continues across much of central and southern Spain while other regions of Europe experienced favorable widespread rain and near normal temperatures.
- EU cash premiums were little changed. However, the EU was still looking for additional export demand, despite the 1.2 million mt sold to Algeria and Saudi Arabia [see below]. There is no way the EU will meet the USDA’s 27 million mt export number, and FAM raised the French 16/17 ending stocks by 250k mt. The German Co-ops raised their crop number to 25.2 million mt (now up 3% from last year’s 24.4 million mt), leaving the market struggling between the current 7-day hot and dry forecast against the 8-15 day cooler and wetter outlook.
- French wheat was US$10/mt off the pace at the GASC tender, whilst Saudi’s purchase looked like German/Baltic replacement was discounted by US$3-5.
- Black Sea wheat:
- Russian wheat continued to firm with LH July readily bid by GASC shorts at US$185/mt in Black Sea ports against reported offers at US$189/mt. August delivery wheat was bid the same price and despite recent higher production estimates, the lack of farmer selling and ongoing VAT problem continued to push Russian cash prices higher. And at US$15/mt below German wheat or US$25/mt below HRW, Russian wheat still does look cheap.
We had a very good week in the markets:
- Saudi Arabia bought 805,000 mt wheat for Aug-Oct’17 shipment.
- Egypt (GASC) bought 300,000 mt Black Sea wheat for July 15-25 shipment at US$205.50-207/mt.
- Tunisia bought just 25,000 mt of its 92, 000 mt tender at US$189.95/mt.
- Israel bought 30,000 mt of wheat.
Significant events this past week:
- Significant events:
- Weather continues to be a concern. Now dry conditions in Western Europe with some extreme heat and no rains are expected for the coming week. The long term forecast still has hot dry conditions in the Black Sea in July-August and prolonged dryness in Australia is causing increasing worry. The HRS S&D is becoming untenably tight and US HRW is struggling to find protein.
- There are potential significant changes coming to the world trade matrix, with much hinging on the quality that Germany and the Baltics eventually produce.
- In our view, while weather concerns continue, 2C WRS 12.5% protein should be worth C$7.50 per bushel in Sask.
Primary elevator bids data source: PDQ
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