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
World Wheat Overview:
2017/’18 World Wheat Overview: USDA WASDE Report February 8th 2018
- 2017/18 World Wheat production has been increased to 758.25 million mt, up from 757.01 million mt in the January WASDE report.
- World wheat supplies have also been increased to 1,011 million mt, up from last month’s 1010 million mt due to projections for production increases in Argentina and the Ukraine.
- World ending wheat stocks have been projected at 266.10 million mt down from January’s estimate of 268 million mt.
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 this week’s market events in the major wheat origins.
- Futures: Mar’18 contract Chicago winter wheat closed at 449 which was down by 7.25 cents in Fridays trade, but up by 2.2 cents for the week. Meanwhile, Mar’18 contract Kansas hard red winter wheat closed down by 9 cents at 465.5, but was also up by 2.2 cents for the week. In Minneapolis, Mar’18 contract hard red spring wheat closed at 603.5, which was down by 9.5 cents in Fridays trade, and down by 0.2 cents for the week. Meanwhile May’18 hard red spring wheat closed at 615.75, down by 9.5 cents on Friday, but up by 1 cent for the week.
- Funds: Index funds were little changed last week, while speculative hedge funds have slightly increased their short position in wheat over the past week. As of February 9th, speculative hedge funds are reported to be short 13.8 million mt of wheat, which is up by 1 million mt from February 6th.
- Matif: Matif wheat futures in Europe closed at €159.00 which was down by €0.75/mt on Friday, but were up by €1.75 for the week. EU exports continue to lag behind projections.
- Canadian wheat: In grain shipping week 27, Canadian producer deliveries are reported at 374k mt, which is down from last week’s 438k mt.
- Total exports are reported at 389k mt, which is up significantly from last week’s 296k mt. As of week 27, Canadian non durum wheat exports are on pace to achieve 16.27 million mt, which is below the AAFC prediction of 17.2 million mt. However, it should be noted that AAFC estimates also include 1.2 million mt of exports which are not included in CGC weekly shipping data, as well as 0.3 million mt of flour exports which could potentially put total exports as high as 17.4 million mt, and which could explain the USDA adjusting Canadian ending wheat stocks downwards to 6.14 million mt from the previous 6.64 million mt in Thursdays USDA WASDE report.
- The USDA WASDE report on Thursday showed US ending wheat stocks to be higher by 20 million bushels at 1009 million bushels, as slow US exports took a toll. Meanwhile, USDA export projections for several key US wheat competitors have been increased, which drove winter wheat lower in Thursdays trade. The biggest adjustment to US ending stocks came in Kansas hard red winter wheat which was adjusted upwards by 10 million bushels, while Chicago soft red winter wheat ending stocks were adjusted upwards by 7 million bushels.
- US hard red spring wheat was the only class of wheat to be adjusted lower, with ending stocks being revised downwards by a small 2-million-bushel adjustment. US hard red spring wheat growing regions remain dry, with reports indicating that 48% of the US spring wheat crop area is now in drought. This is up by 4% vs last week’s 44%, and indicates that the situation is worsening. However, the US national weather service is foresting rains for the southern US plains in the 7 – 14 day forecast, and the overall percentage of US winter wheat area experiencing drought is now estimated at 45%, down by 2% vs last week.
- There is little crop activity currently happening in Australia. However, Australian wheat futures hit their highest weekly close since Dec 1st (although they were down in US$ terms due to exchange rate fluctuations).
- Australian Fob values have continued to rise and on the cash market Australian wheat has traded slightly higher at $230-$240 US per MT Fob.
- Heat has coupled with dryness prompted analysts to cut their estimates of Argentine corn and soybean production. Widespread weekend rains were expected across much of the Argentine growing regions, but turned to be disappointing. While wheat has been trading on concerns about lower Argentine wheat production due to drought, the USDA surprised the markets by raising its estimates of Argentine wheat production by 500k mt, to a new 18 million mt based on higher than expecting yields from later harvest stages.
- Weekly all-wheat shipments this past week were reported at 243k mt which brings the YTD season total to 13.7 million mt (19% below last year). EU exports are on pace to achieve an annual total of 21-22 million mt which is still well below the USDA’s 26 million mt. Given the outlook, it seems likely that the USDA will further reduce EU exports in coming months.
Black Sea wheat:
- Black Sea exports remain strong, with Indonesia is reported to have purchased 50k mt of wheat from Black Sea Origin, while Korea bought 65K mt of Russian origin wheat.
- In the past week, Russia’s IKAR has released estimates for the 2018/19 crop year which project Russian wheat production at 73-82 million mt, and with 2018/19 exports of 32-36 million mt – close to this year’s exports of 36.5 million mt. Most market analysts are currently working with lower production estimates for Russia for 2018/19 based on the assumption that production records cannot continue indefinitely.
- Russian 12.5% protein wheat traded a fraction higher at US$197.50/mt for March with the monthly carries and quality spreads unchanged.
- Russian/Romanian wheat traded to Egypt over the weekend (120k mt from Romania and 240k mt from Russia) at prices of around US$221-223/mt CIF (~US$208/mt FOB). This is $2-3/mt higher than on the previous tender on Feb. 2nd.
- Weekly US export sales were reported at 289k mt, which takes the YTD season total to 750 million bushels (down 11% on last year and below the USDA’s projected 6% decline).
- US export inspections were reported at 429k mt, which brings YTD inspections to a total of 621 million bushels which is down by 3% vs last year.
- Iraq tendered this past week for 50k mt, but results are unknown.
- Indonesia is reported to have purchased 50k mt of wheat from Black Sea Origin.
- Korea bought 65K mt of Russian origin wheat with prices of these sales unpublished.
- Tunisia purchased 125k mt of durum a US $299 – 303.50 per mt.
- Japan tendered for 100,517 mt of wheat from Australia, Canada, and/ or the US. Of this, 33,442 mt are sought from the US.
- Algeria also tendered on Thursday for April durum.
- We expect Egypt to confirm prices of Russian/Romanian low quality wheat on Monday; we assume prices of around US$200.00 CIF.
- Saudi Arabia tendered on Friday and purchased 739k mt of optional origin wheat at an average price of US$240.16/mt. Canadian wheat looks competitive to all markets including Saudi. Wheat should be more competitive when the G3 elevator in Vancouver is completed.
The past week was marked by some major fund short covering, as funds were previously holding near record short positions. Funds were estimated to have bought back 50,000 contracts (250 million bushels) of corn in Tuesdays and Wednesdays trade, and also engaged in some wheat short covering early in the week. However, speculative hedge funds increased their short position by 1 million mt from Feb 6th – Feb 9th and funds still remain short on both corn and wheat.
Going forward, markets will begin to focus increasingly on the 2018/19 crop year and on new crop yield estimates.
Russia will be closely watched, as trade expectations for the 2018/19 Russian wheat crop vary widely. Trendline yields would take Russian wheat production 10 million mt lower, but some analysts are projecting next year’s yields to be comparable to this years.
EU ending stocks are expecting to be revised higher going forward due to increased competition from the Black Sea regions, and funds remain short.
Argentine and US weather are still a factor with dry conditions prevailing in much of the southern US wheat belt, and with the current outlook for Argentina once again turning dry. Widespread weekend rains were expected across much of the Argentine growing regions, but turned to be disappointing.
Due to a temporary issue, we are unable to include the tables for Primary Elevator Bids, Grade Spreads and FOB and Basis Prices on the web page. Please open the PDF file below for this information.
Primary elevator bids data source: PDQ
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For the archived wheat market outlook and price reports, please CLICK HERE.
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