Wheat markets see opportunity in the search for quality

Earlier this week, wheat markets received a bump higher following weekend news of intensified geo-political tensions between Russian and the Ukraine in key wheat shipping zones of the Black Sea region.

Grain markets will continue to watch developments over there. The Kerch Strait was temporarily closed after the incident, but has since reopened and wheat markets relaxed once again. United States soft red winter and hard red spring futures are trying to maintain chart support along fall season price lows, while U.S. hard red winter wheat futures are pressing into fresh contract lows.

U.S. wheat prices relative to corn are now as cheap as they were earlier this year before prices began a strong rally. Cash basis levels firmed as merchants want to acquire high-protein inventories. 

The search is on

Russian wheat offers are variable, with prices wide-ranging. That's a sign exporters are beginning to have problems sourcing high-quality wheat from the Black Sea region - an aggressive exporter dominating the international market over the past few months.

Here at home, it seems Canada found its niche, since the wheat export pace is running ahead of last year at this time as demand for quality and protein is a priority.

Market bulls highlighted strong cash basis across Canadian Prairie elevator locations and express hope for higher world prices if and when Russia’s exportable surplus wanes.

It's quite possible, but I see limitations to upside on wheat pricing opportunities. That's because of the ongoing stagnation from the corn market, the soon-to-be overlapped Argentine wheat availability and as the calendar edges closer to accessing 2019 winter wheat crops from across the northern hemisphere.

The International Grains Council issued its first projection for global wheat planted area for 2019-2020. It estimates it will rise by about one per cent to 220 million hectares, the first increase in four years. 

Weather watch

Weather across much of Europe, the Black Sea region and U.S. winter wheat areas will be closely watched for any adverse cold temperatures or wide swings in temperatures over the next few months that could cause some winter kill on Northern Hemisphere crops.

In the meantime, significant basis variance on spring wheat can exist at our local Prairie elevator. Some of it has to do with arbitrage, need for certain quality, freight differentials, railcar fill need, or just competition between line companies. Local variance can be 35 to 50 cents a bushel basis pulls mainly for quality wheat.

While recently backing off slightly, generic spring wheat basis levels have been pretty strong this fall season. They've generated cash price returns at the elevator this week between $6.75 to $7 per bushel in Manitoba and Saskatchewan and $7+ per bushel in Alberta. But even if world cash prices and futures do rise into the new year, I struggle to find reason to justify why elevator cash flat prices need to roll much higher than sporadic 35 to 50 cent a bushel pulls. 

It’s tough to make generic sales recommendations in such a wide-ranging price environment. But growers should look to sell strong local basis pulls when they occur. It depends on location, grade, type, company, delivery slot - all issues which are 100 per cent local.

Bottom line

Overall wheat markets remain generally well-supplied internationally, but the hunt for quality and protein is putting some price premium into cash wheat pricing.

World wheat markets are currently well-supplied, but the search for quality and protein means a price premium right now.

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.