Where wheat prices will go in 2023
Grain markets started the 2023 calendar year mostly in the read as moisture concerns in South America couldn’t compete with technical selling and global commodity demand concerns. More meteorologists are pointing to a fading La Nina, which could bring much-needed moisture events to the American Southern Plains and Argentina. Albeit, for the latter, it may be too late for a lot of the country’s corn and soybean crops, as of last week, 3/4s of Argentina’s beans and 2/3s of the corn had been planted, with 28% of both crops already rated poor-to-very poor.
That said, the market is believing that Brazil could make up for any shortfalls in Argentina, and that’s dragging things lower, including wheat.
As most crops have relatively tight balance sheets, weather continues to be one of the major variables impacting values. If Mother Nature’s pendulum swings from La Nina to El Nino, it would alleviate a lot of production concerns in the Americas, and thereby, help rebuild grain stocks. The question it comes down to is timing, as good rains in the spring would be viewed as bearish, as it would help U.S. corn and wheat production from Texas up to the Dakotas. Elsewhere, some cold temperatures in Russia might increase winterkill numbers, but conditions are generally favourable from there all the way over into Europe. South of the Mediterranean Sea though, North African countries continue to be negatively impacted by ongoing drought, which was only exacerbated over the last 3 months of 2022, thanks to below-average rain. Therein, sentiment seems to building for the potential of at least average crops in Canada, Europe, and Russia, with the biggest wild cards for grain markets being the United States’ production and China’s demand. This is because with the aforementioned tight balance sheets, there’s a fair amount riding on America’s 2023 corn, soybean, and wheat harvests.
One nation we know we’ll see some bigger production numbers from is Australia, where the wheat harvest is now being estimated by traders at 42 MMT (a new record). While there’s certainly some quality issues from the Eastern part of the country after heavy rains during harvest, Western Australia is exporting record volumes of wheat with ports booked through to May. The latter area’s wheat will compete most against Russia’s own record wheat harvest. This also comes at a time when Europe’s own exportable supplies are running a little thin much earlier than usual, which may lead to their usual customers going to Australia first, given the various logistical, legal, and financial challenges sourcing wheat from Russia.
So, where do wheat prices go before we harvest the 2023 crop? Here in Canada, strong demand is helping keep values elevated, albeit they have pulled back a bit in recent weeks with the futures market. Cash CPS and HRS wheat prices for spot movement (1st and 3rd charts below, respectively) are basically the exact same as where they were a year ago. Alternatively,, basis levels for CPS wheat are sitting near $2.60, which is about 40 cents below the same time a year ago but more than a dollar better than where we were 3 months ago.