When should I sell some wheat?

Grain markets had a sideways week until Friday, when concerns over dry Brazilian weather established a greener finish. Soybean futures touched a six-and-a-half week high on Friday, which helped corn pull up its socks after hitting a two-year contract low of $4.70 on Thursday’s close. Chicago SRW futures won the week in the wheat complex, putting together three days of consecutive highs, the highest since early August. It still saw a negative close for the week but a positive close for the month! On the macroeconomic side, fresh data showed that U.S. job growth slowed more than expected in October, which may suggest more interest rate changes are in store, pressuring the U.S. Dollar to a six-week low. This is a net positive for U.S. grains as a cheaper currency means more affordable exports, something that’s been weighing on U.S. corn and wheat demand. I don’t necessarily expect to see any significant changes in this Thursday’s November WASDE report.

Much of the excitement at the end of the week was centred on Brazil’s weather for the next three months, with Columbia researchers suggesting there will be a 45 to 60 per cent chance of below-average precipitation during the soybean growing season (and the subsequent secondary safrinha corn crop). This includes Mato Grosso, which accounts for over one-quarter of the country’s soybean production. With El Nino intensifying, it’s too dry in the central and northern areas and too wet in the south. The U.S. soybean balance sheet is already tight, and any production shortfalls from Brazil could mean more demand for U.S. soybeans. This means higher U.S. soybean prices and, therefore, higher corn prices to compete with beans for Plant 2024 acres.

Argentina is finally getting some rain, which will help the parched corn and soon-to-be-planted soybean crops, but it’s now considered too late for the wheat. With that said, the Buenos Aires Grains Exchange dropped its wheat harvest estimate last week by five per cent to 15.4 MMT, while the Rosario Grain Exchange fell its estimate further to 14.3 MMT. Currently, the USDA is forecasting a 16.5 MMT wheat crop in Argentina, and I expect that to get downgraded slightly on Thursday, but not as low as the private market estimates.

Now that we’re getting into the “watching the southern hemisphere market” time of year and the post-harvest work is complete, it’s time to start thinking more about marketing some wheat. For durum, we’ve seen a weak start to the export campaign. Turkish durum supplies are finding cheap homes in Europe and North Africa, and Western Canadian durum prices have weakened over the last month. Today, we see a weekly average of just 50,500 MT shipped out. While the 116,100 MT of durum exported in week 12 was a marketing year high, this current pace is still well below the 67,800 MT needed for the last 39 weeks of the 2023/24 crop year to meet Agriculture Canada’s 3.3 MMT target. I expect exports to pick up in the coming weeks, so watch through the end of the calendar year to price something for nearby or early 2024 movement.

It’s a bit of a similar dynamic with CPS wheat, as cheap international competition combined with weaker feed prices are keeping low-protein wheat prices subdued. That said, it’s worth noting that cash values have not dropped nearly as much as the Kansas City wheat futures have, so we could continue to see the basis widen should the paper market remain weak. That said, I would be open to locking in futures in the next month for a late winter or early spring delivery and pricing out the basis any time between now and delivery. If you’re not interested in a basis play, you may consider some sales on the rallies in the next month or two. Key takeaway: last year’s prices are not returning during this suggested two-month timeframe.

Finally, hard red spring (HRS) wheat prices are the only milling grain market options that have seen a positive gain in the past month. This is largely because of a stronger basis, which has been supported by strong demand through the first quarter of the 2023/24 crop year. For example, weekly exports are averaging just under 400,000 MT, meaning just 330,000 MT are needed weekly for the last three quarters to hit the AAFC’s target of 18 MMT. Arguably, part of the strength of HRS wheat prices has been the lack of international competition. While we might soon see a little slowdown in shipments due to southern hemisphere supplies coming to market, there’s generally going to be less to go around. It may be another small Argentine harvest or a much smaller crop from Australia than the monsters they’ve produced each of the last three years. Ultimately, I’m looking to price something before the end of November. I expect Statistics Canada to show a larger wheat crop in their updated report a month from now, on Monday, December 4.

Overall, the wheat complex continues to work through limited bullish headlines and is playing on the follow-the-leader context of corn and soybeans. With interest rates where they’re at, I’ve been having a few conversations lately about maximizing cash flow relative to the cost of storage versus a deferred delivery option. Back in this column in March 2023, I provided the template to easily help you determine if locking in a few months from now is worth it:

1. Take your cash price (i.e. $10/bushel wheat),

2. Divide it by 12 months (interest is measured annually), and

3. Multiply it by the interest rate (i.e. 6 per cent or 0.06 on your calculator)

In this example, the storage cost is $.05 per bushel per month to store wheat in your bin, relative to what you could’ve possibly made in the bank with the cash from selling it today. So, if you’re willing to wait four more months to move something, using this example, the price needs to be at least $.20 per bushel higher than today’s price to at least break even on your storage costs.