Lots of factors playing into strong Canadian wheat demand
Last week, StatsCan released its annual September satellite-based production estimates. The agency said that spring wheat yields in Canada will come in at 49.5 bushels per acre (bpa). That is up from the 46.6 reported a few weeks ago. That figure puts production expectations at 22.91 MMT. In the August report, StatsCan said Canadian spring wheat production would come in at 21.56 MMT.
As usual, grain markets had a tough time believing what Statistics Canada had to say. It’s hard to when you see spring wheat yields jump so significantly and be so variable.
Specific to the Canadian Prairies, Alberta’s average spring wheat yields climbed 4 bpa to now sit at 55.1, Manitoba went up 3.1 for an average of 54.5 bpa, and Saskatchewan jumped 2.2 to 43.2 bpa. Check out some of the variability of this year’s estimates below. Specific to Alberta Agriculture’s spring wheat yield estimates, one theory for their estimates being lower than StatsCan’s is that is does not include irrigated acres, but just dry land production.
Also last week, we got Agriculture Canada’s updated balance sheet for Canadian crops. As we mentioned alongside the StatsCan production report, spring wheat going into the feed, waste, & dockage column was bumped by 4.6%, or 171,000 MT more to 3.852 MMT. Conversely, Canadian wheat exports (not including durum) were lowered by 100,000 MT to 17.4 MMT. This would be a drop of 1.1%, or 200,000 MT lower from last year’s 17.6 MMT. However, as mentioned above, Canadian non-durum wheat exports for 2018/19 are tracking 22% higher yearover-year.
Ultimately, the AAFC lowered Canadian non-durum wheat ending stocks at 4 MMT, the tightest since 2012/13. With the additional 1.35 MMT of Canadian non- durum wheat suggested by StatsCan’s report last week, it might seem possible that 2018/19 carryout sneaks back above 5 MMT. This might be proved wrong though if the AAFC starts to acknowledge the stronger pace of exports, namely the opportunity in Japan. According to a recent USDA report, Japan is not planning to import any U.S. wheat in 2018/19.
That’s a big deal, considering that, last year, Japan imported 2.994 MMT of American wheat.
The Trans-Pacific Partnership between Japan and 11 other Pacific Rim countries is poised to provide benefits to countries like Canada and Australia - but not the U.S. (who did not sign the deal). Increased market competition to Japan is expected to pick up, and with the U.S. paying tariffs of roughly $65 per tonne on wheat exports, the U.S. is now at a distinct disadvantage, hence why the USDA is expecting zero American wheat to land in Japan this year. On that note, Canadian wheat exports (not including durum) are starting to track fairly well. Exports for Week 7 out of the Great White North were sitting at 413,200 MT, down 6% week-overweek, but nearly 71% higher than the same week last year. To date, total wheat exports (excluding durum) are now sitting above 2.53 MMT, more than 20% higher year-over-year.
Worth noting is that the typical fall Pacific Northwest (PNW) soybean program is non-existent this year, which means wheat basis on this coast has softened with the increased export capacity / decreased freight costs. Despite the better export options out of the PNW, 2018/19 marketing-year-to-date, US HRS wheat exports are tracking 15% lower compared to 2017/18 with just 1.74 MMT exported. Looks like Canada is snapping up the demand.
Brennan Turner is President & CEO of FarmLead.com