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
- Statistics Canada published their first report on expected seeded acreage by crop for 2017 last Friday (April 21/’17).
- Nationally, Statistics Canada expects Canadian farmers to seed 23.2 million acres of all varieties of wheat in 2017. Total wheat acreage is virtually unchanged from last year.
- At 22.4 million acres (virtually unchanged from last year), Prairie producers are expected to seed 91% of the total Canadian wheat acreage.
- Alberta anticipates wheat acreage to be up 9% to 7.4 million acres, a possible record high, but less area is expected to be dedicated to durum, down 8.5% to 1.1 million acres.
- Saskatchewan farmers expect wheat area to decrease 2.5% to 12.1 million acres. This is due to an 18.8% drop in durum acres, to an anticipated area of 4.1 million acres. Spring wheat acreage is expected to increase by 9.1% to 7.5 million acres.
- Farmers in Manitoba intend to plant 2.8 million acres of wheat, down 9.6% from 2016.
Global wheat and trade:
Below is a brief synopsis on this week’s market events in the major wheat origins.
- During week 37, 304k mt of wheat (excl. durum) were delivered into the handling system. Canada loaded 275k mt for export; 9.5 million mt year-to-date. This is 20% or 2.3 million mt lower than last year-to-date.
- Per StatsCan on Friday, Canadian acreage seeded to spring wheat is forecast to increase by 8.2% (+1.3 million acres) to 16.7 million acres (from 15.4 million acres last year).
- Producers delivered 88k mt of durum into the handling system. Durum exports during week 37 amounted to 95k mt; 3 million mt year-to-date. This is 13% or 442k mt lower than last year-to-date.
- StatsCan forecasts total Canadian acreage seeded to durum to drop by 16.9% (-1 million acres) to 5.15 million acres (from 6.2 million acres in 2016). This was higher than expected by the Canadian and international trade.
- Agriculture and Agri-Food Canada (AAFC) raised their total Canadian wheat stocks estimate for the 2016/17 crop year to 7.3 million mt (5.2 million mt last crop year).
- Concern is growing in the trade that ongoing cold temperatures and snow could push seeding dates in Canada well beyond ‘optimum’ seeding dates.
- US wheat inspections were 672k mt (season total 851 million bu ,up 32%). Export wheat sales were 414k mt (season total 1,016 million bu, up 41% against USDA’s 32% expected increase). Wheat sales continue to run above USDA projections.
- There was speculation that US HRS acreage will be less than expected this year due to higher soybean crop insurance. In addition, year to date HRS plantings were just 13% complete against 25% last year and 21% average. Remember that HRS is the only class of US wheat to see a decline in stocks this year, which will put increased focus on Canada where snow and excess moisture could cause significant delays in seeding.
- US winter wheat ratings were up another 1% to 54% Good to Excellent against 57% a year ago, and it remains ahead of normal with 19% headed against 11% last year and 13% average.
- EU weekly soft wheat shipments were 346k mt for a season total 19.6 million mt, down 19%.
- France and the Iberian Peninsula remained dry, while central and eastern Europe was near normal precipitation with temperatures slightly below normal.
Significant purchases: Quiet market with few trades to report.
- Korea bought feed wheat for late August shipment at around US$192.75 /mt; the price was US$5.25/mt higher than last week’s purchase.
- Iraq will try to buy wheat via direct contracts outside the tender system because of their failure to procure anything in recent tenders.
- It is now almost 6 weeks since the last Egyptian GASC tender for wheat.
Significant events this past week:
- Futures: Kansas City and Chicago wheat futures fell sharply (contract lows in KC) whilst Minneapolis fared better on the planting/weather concerns for US and Canadian spring wheat.
- Funds: Spec funds added another 7,667 contracts to their net short position in Chicago Wheat Futures and options.
- EU: EU wheat futures closed down on a firm €uro, a wetter Black Sea forecast, weakening cash values in Russia and the lower CBOT.
- Consensus suggested that dryness in the west was a bigger concern than the cold in the east, and there is very little rain in the forecast. There are already some water restrictions in place in France, and concern will grow as we head into May.
- Conditions in the east, Balkans and Black Sea remain generally good however, and the real threat to France would be another year of a small crop compounded by low prices in the Black Sea. Cash premiums and port data suggests a continued improvement in shipments from the EU.
- Argentina: Argentine Fob values dipped by US$3/mt with 12% protein offered for May at US$190/mt plus US$4/mt per month, but with bids $5-8 lower. The 11.5% protein wheat discount remained unchanged at US$10/mt with 11% protein a further US$5/mt less. Farmer selling rose to 10.8 million mt against just 6 million mt last year.
- Bolsa De Cereales published their first estimate of new crop acreage at 5.5 million ha up 8% on this year, with a crop number of 17.5 million mt given normal weather. Soil moisture levels are good and new crop prices are favourable.
- Australia: Australian Fob values fell about US$4/mt on the week and sowing has begun in both Western Australia and Queensland with recent rains providing generally good conditions.
- The US agriculture attaché for Australia lowered cereal exports to 22 million mt for 2016/17 and 18M in 2017/18. This means that wheat ending stocks in Australia will be greater than expected.
- Russia: The Black Sea was quiet with values nominally unchanged, although it remained tough to find a firm buyer in front of the US$15/mt old crop-new crop inverse. New crop feed wheat was again the most traded item, ending the week with a bid-offer spread of US$159-164/mt. The harvest C&F shorts to both the EU and Asia have reached volumes which may be hard to cover.
- Midweek the Rouble traded below 56 against the US$, its highest level since early July 2015.
- According to the US Ag attaché to Russia, the marketing year (MY) 2017/18 forecast for wheat production is 66 million mt, 9% (or 6.5 million mt) lower than last year, but still above the 5-year average of 56.5 million mt. Grain prices in the spring of 2017 are lower than in spring 2016, and continue to decline because of large carry-over stocks and stagnant domestic and foreign demand for grain. A rouble that is stronger than last year is also curbing grain exports from Russia. The decreasing grain prices may affect farmers’ spring grains planting decisions.
- Ukraine: Wheat production in marketing year (MY) 2017/18 is forecast at 23.9 million mt, a decrease of about 11% from the previous season based on decreased winter crop area compared to the previous season, which is not expected to be offset by spring plantings. Exports of wheat in the new season are anticipated to reach 12.9 million mt, a 19% decrease compared to the previous MY.
- Bangladesh: In MY 2016/17, Bangladesh’s wheat imports are estimated at 5.7 million mt, a 21% increase from MY 2015/16 due to record low prices in the international market and comparatively high prices in the local market.
- Bangladesh’s wheat imports for MY 2017/18 are forecast at 5.9 million tons (1.35 million mt by the Government and 4.55 million mt through private commercial sales). The import forecast in MY 2017/18 is 3.5 percent higher than the previous year due to changing food consumption habits, fast urbanization, and expected lower prices in international markets. Bangladesh meets 75 percent of its wheat consumption needs through imports, sourcing lower quality wheat from Russia and Ukraine, and higher quality wheat from Canada, Australia and the United States. According to trade sources, during the current MY 2016/17 about 40 percent of wheat imported is sourced from Russia and 30 percent from Ukraine.
- Vietnam: The marketing year (MY) 2016/2017 wheat total consumption is estimated at 4.35 million mt, a considerable increase (1.675 million mt increase) compared to 2.675 million tons in MY 2015/2016. This is due mainly to the increase feed use of wheat, as feed wheat prices were competitive compared to corn in the international market.
- The MY 2017/2018 wheat consumption forecast remains high due to wheat prices, which are expected to still remain low due to larger crops in wheat producing countries in MY2016/2017. The increase in feed wheat consumption is reflective of the growth in the feed industry. At the same time, increase consumption for milling wheat is driven by the on-going demand for wheat based products in the fast food industry. The total consumption in MY 2017/2018 is smaller than in MY 2016/2017 due to smaller demand for feed wheat. The demand for milling wheat will see a slight increase.
- The increase of milling wheat use includes an increased use of top-quality wheat for higher quality wheat based products introduced by western food outlets. The demand is increasing steadily for U.S. wheat, which is considered as premium quality wheat.
- There are some crop concerns developing:
- Dryness across Western Europe
- Late US/Canadian spring plantings
- A potential high abandonment rate on US winter wheat (on a 100-year low acreage), and
- A record fund short
- All come together just as the world’s crops are moving into their prime growing/planting season. This likely means that downside looks limited to values from here until the crops are made. However, so far, there has been no spark to trigger fund short covering.
Primary elevator bids data source: PDQ
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