Record Wheat Exports to Continue?
Wheat prices on the futures board finished last week in the green as U.S. exports sales came in above expectations and hot weather in North American growing regions supported the complex. While the hot weather should help protein prospects, it will intuitively negatively impact yield potential. However, with some rains falling this past weekend and/or in the forecast this week, wheat prices are starting the last week of trading in July a bit lower.
Looking at some other wheat-producing countries, harvest downgrades continue to be seen in the Black Sea. Notably, USDA offices in both Kazakhstan and Romania lowered their expectations for not only wheat production, but also exports. In Romania, the USDA attaché there is expecting a 7 MMT wheat harvest, down 19% year-over-year, and mainly due to average yields falling 22% after a spring drought. In Kazakhstan, the attaché there lowered its expectation from the official USDA forecast by 700,000 MT to now sit at 12.8 MMT. While this is a 12% improvement year-over-year, exports are now forecasted at 6.2 MMT, well below the official estimate from the USDA of 7.1 MMT. Also worth mentioning is Ukraine, whose wheat stocks as of the end of 2019/20 should total 1.8 MMT, a 10-year low after a record export campaign.
Some of this could influence where Saudi Arabia buys its wheat, especially since the government there has indicated that they’re selling its entire flour milling business. For whoever buys the flour mills, Saudi Arabia officials that since the businesses would be now private, they can buy from wherever they want, in addition to purchasing from SAGO, the state grain buyer. While this may not benefit Canada directly due to poor political relations, it might open
up some doors for Canadian wheat to go into other markets as other competitor exporters focus on Saudi Arabia instead. For context, Saudi Arabia usually imports about 3 MMT of wheat every year.
Coming home, through May 2020 datapoints, Canada has imported a record amount of American wheat, mostly going into the feed category. With the new USMCA trade agreement, any grain that’s grown in the U.S., but is of a registered variety in Canada, can receive an official Canadian grade. Thus, with higher corn basis in the U.S., and some sub-par quality in last year’s wheat crop from North Dakota and Montana, more U.S. wheat found its way into the Canadian feed grain supply chain.
On the flipside, Canadian wheat exports hit a new monthly record high in May with 3 MMT sailed, largely in part by more business with China and Indonesia. With 2 reporting weeks left to go in the 2019/20 crop year, total non-durum wheat exports by Canadian shippers is sitting at 17.3 MMT, or just 1.3% behind last year’s pace, despite trailing 2018/19 almost the entire crop year! Will we hit AAFC’s forecast of 18.2 MMT of non-durum wheat sailed? Based on the average volume of exports these last few months, I think it is almost a guarantee! While we won’t set a record this 2019/20 crop year for wheat exports, how we started the year and how we finished is definitely one for the history books! Very rarely do we see shipments at the end of the crop year be stronger than those at the beginning!
That said, we know that there will still be lots of wheat available from the likes of the Black Sea and Australia this year. While AAFC is forecasting 19 MMT of non-durum wheat exports out of Canadian ports in the 2020/21 crop year, the amplified demand for COVID-19 world should continue to provide a floor for Canadian wheat prices. Of course, this is assuming that there’s no further rail protests or government intervention!