Wheat market stabilizes into the fall season

Highlights

  • Short crops have a long tail on price charts 
  • The early summer price spike in U.S. wheat futures triggered a wave of farmer selling on both sides of the border
  • Fundamentally, the wheat market still finds itself globally in an abundantly well supplied bearish condition

Wheat markets tumbled through the summer after high spike in early July, notably on spring wheat. There is now a sense of stability entering United States wheat futures trade - relative cautiousness ahead of the September crop reports from the United States Department of Agriculture report on Sept. 12.

Short crops have a long tail on price charts. The drought across the northern tier U.S. spring wheat states this summer drove fears and, in turn, Minneapolis spring wheat futures, on a big run up over US$8 per bushel to start July - the first time above that mark in four years. The price spike triggered a wave of farmer selling on both sides of the border. U.S. producers had ample storage unloaded old crop supplies, while Canadians made forward sales against their 2017 harvest.

Prices moved

Supply was rationed. New crop production results are coming out better than expected. Buyers found other alternatives, other places. As a result, prices moved back down, but probably now down to levels that demand picks back up again. I think the Kansas City and Chicago winter wheat markets have probably bottomed and I think Minneapolis may be in the process of bottoming as well.

Fundamentally, the wheat market still finds itself globally in an abundantly well-supplied bearish condition. However, I suspect wheat is a market that is trying to sock in a seasonal low. That is not to say its rally mode is immediately ahead - not likely - but the steady parade lower in wheat futures from the early July spike high has perhaps abated.

In Canada

On this side of the border, Prairie spring wheat cash bids surged to almost $9 per bushel at the early summer price peak and have since tumbled almost 30 per cent. Bids now sit between $6.20 to $6.50 per bushel for No. 1 Canadian western red spring wheat, depending on location. In our view, wheat prices have now stabilized.

The spring wheat supply story has evolved significantly over the past few months, with better than expected yield here in Western Canada an emerging theme.

Black Sea origin wheat shipping dominates the offshore international marketplace for the September and October markets, if not beyond. A huge Russia wheat crop just might top 80 million tonnes, whose quality is comparable to U.S. hard red wheat at 11 per cent protein. So there is probably not a lot of price upside into the early fall market.

The spring wheat supply story has evolved significantly over the past few months, with better than expected yield here in Western Canada. Good quality also is a big fix for the market. While Statistics Canada's Aug. 31 production report estimated Canadian all-wheat output 25.5 million tonnes, it seems more likely we are looking at a 28.5 million tonne crop - maybe more.

Elevator pricing

Elevator pricing has sunk through the summer (better yield, Canadian dollar gain) and spring wheat prices are now at a level that farmers will probably take a more metered approach to deliveries after the initial harvest flush into the commercial pipeline.

With the bigger crop, however, wheat remains a “supply push” marketing environment, and that is not a scenario that inspires significant or sustained bullish sentiment, at least until some new market catalyst develops.

The Prairie harvest overall may be better than expected and protein levels appear variable. Global supplies of high-protein wheat are tight, despite a glut of grains, but not quite as tight as thought a month ago.

Winter prediction

Timely delivery will be required from the Canadian farmer all year, such that I think we can expect winter flat price gains. Starting point low-enough nearby delivery spot cash bids of $6 to $6.50 a bushel likely marks important bottoming action this month.

We’ll be keeping an eye on Australia now that they seem to be back to needing rain again. Official estimates are that the country will likely produce its smallest wheat crop in eight years, down by 2.34 million tonnes from March, to 21.64 million tonnes. That's roughly a third from 2016-17's record-large crop.

Some market attention will also go to U.S. winter wheat planting conditions as operations now ramp up. Current spring red wheat/hard red wheat prices are not likely encouraging the American farmer to aggressively turn to planting wheat, and last year’s winter wheat acres were already a 100 year low. I expect those U.S. acres are again probably going to be down again.

Bottom line

In the early summer, weather concerns drove the wheat markets up, but given the various circumstances in Canada and around the globe, price stability is building.

Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call 204-654-4290 or visit www.pfcanada.com to find out more about his services.