Last week of April provided significant changes to wheat prices

By Brennan Turner

Wheat markets continued their pullback into the last week of April as the complex digests decent Plant 2020 conditions against weaker global trade flows.

Last week, wheat prices lost some ground as they were pressured by both farmer and technical selling on the futures board. After Friday’s liquidation, it was rumoured that hedge funds moved to a net short position in Chicago wheat as well, albeit they continue to hold a net long in Kansas City wheat. Minneapolis hard red spring wheat has not seen a net long position held by managed money since September 2018, and own a net shot of 17,400 contracts as of last week.

On the bullish side of things, winter wheat conditions around the world seem to be dropping thanks to moisture deficiencies. In the U.S., through the third week of April, 57% of the crop is rated good-to-excellent, down 5 points from the previous week. It is expected that crop conditions could take another hit as we flip the calendar to May on continued dryness in the PNW and temperatures nearly touching 100 F this week in northern areas of the Southern Plains. On the flipside, wet conditions in the Northern Plains has spring wheat planting well behind the five-year average (although, I’ll remind you, it’s still early!)

Looking abroad, Russia’s plan for roughly 6.5 MMT of all grains left to be exported in their 2019/20 crop year have already been filled. While the market was expecting this quota to be bought up 3 weeks from now, the combination of higher domestic prices in Russia and dry conditions threatening 2020/21 production prospects, buyers were eager to get coverage. Citing the dry conditions, agro-consultancy firm, IKAR, dropped its estimate of the 2020 wheat harvest is Russia by 2.3 MMT to 77.2 MMT. Keep in mind that in 2019/20, Russia produced 73.6 MMT, and that, over the next few weeks, some rain is forecasted for southern areas of the country.

It’s a similar expectation in most of EU, with the European Commission now predicting that soft (non-durum) wheat production in the bloc for 2020/21 will total 126 MMT. This would be a 4% decline year-over-year, mainly because of dry conditions in central areas (especially France and Germany).

In fact, Germany is experiencing its driest April ever, limiting barge traffic along the uber-important Rhine River, which connects with Rotterdam, Europe’s largest port. That said, through the middle of April, EU soft wheat exports were still tracking nearly 2/3s higher than a year ago.

Coming home, Canadian non-durum wheat exports have started to improve a bit, likely due to export limitations set by other wheat-exporting competitors, as well as a weaker Canadian Loonie. Through Week 37, non-durum wheat exports from the Great North have totaled 11.3 MMT, about 11.5% behind last year’s pace. On the flipside, total wheat exports from the U.S., through its Week 46, are tracking 6.5% higher with 21.42 MMT sailed.

Looking forward, Agriculture Canada, in their April balance sheet update, said that spring wheat production for 2020/21 in Canada should total 28 MMT, or a 2% bump from 2019/20. However, while AAFC is optimistic that wheat prices will bump up a bit in the 2020/21 crop year, stocks are expected to climb 20% year-over-year to a very comfortable 6 MMT. While this estimate is entirely speculative in a new COVID-19 world, if realized, it likely means a challenging environment for wheat prices in the 2021/22 crop year. Conversely, despite Canadian 2020 durum acres expected to climb 15% to 2.28M, stronger exports should help keep ending stocks a bit tighter at 900,000 MT.

On that note, I know a lot of farmers are just looking to get Harvest 2019 wrapped up, let alone thinking about the 2021 growing season! If you are one of the unlucky ones that has to use your combine this spring, make sure to get some quick quality assessments done on the grain from an independent lab.

Once you know your grain’s quality, it’s a lot easier to shop around (versus just taking a bath thanks to a bunch of discounts from the local option). In this vein, we’re seeing a lot of farmers take their spring-threshed grain from their combine and putting onto our Combyne, the 100% free, cash grain marketplace we’ve built to help manage current trading relationships (and negotiations), as well as starting new ones.

Brennan Turner is CEO of FarmLead