Weather, trade builds uncertainty amongst agriculture producers

Wheat markets moved through the middle of February with some minor losses on the heels of corn prices pushing lower, but the Russian wheat export tax being implemented and some very cold weather in the Southern Plains has the complex heating up again. Also, last week, the USDA published its monthly WASDE report, in which they lowered global wheat carryout by 3% from the January report to 304.2 MMT. The downgrade was largely based on increased feed wheat use by China, but let’s keep in mind that at this level, it’s still a record level of ending stocks and 10% more than the five-year average! Leaning in, as the table below shows, the only material changes were in Argentina and the E.U.

Leaning in, the USDA is estimating that Chinese wheat consumption will hit a new record in 2020/21 of 140 MMT. This new number is up 5 MMT from the January WASDE and a clear reflection of China’s weaker corn harvest this past year and corresponding depleted inventories. U.S. corn farmers and exporters are also benefitting, in that China is expected to import a new record of 24 MMT of corn, up from the 17.5 MMT that the USDA pegged last month (and the 7 MMT forecasted in the May 2020 WASDE)! Ironically though, despite the huge numbers that the USDA already knows are on the books, China’s customs officials kept their total corn imports number at just 10 MMT.

So, as has been par for the course (and for the last year especially), it’s tough to believe any of the data points that the Chinese government is putting out. This is inherently difficult for grain markets to digest though as their demand for not just corn, but also soybeans and meat, is incredible. And when you have lots of data uncertainty coming from the country that is practically driving the agricultural markets from a demand standpoint, the uncertainly will trickle back to the farmgate.

With so much wheat (and barley) being substituted for corn the world over (but especially in China), it’s important to keep track of corn market happenings. The impact is being felt back here at home as feed grain prices are now distinctly sitting at new record highs. I mean, when I saw feed wheat in the south-central Saskatchewan trade last week on the Combyne Ag Trading Network above $8 CAD/bushel (or $294 CAD/MT), the contrarian in me starts to perk up. This torrid pace of prices creeping higher in the last few weeks alone is forcing me to consider if the pull-back will be just as aggressive. I think that the moment that the pull-back starts is when China starts to import more corn and soybeans from Brazil, but their harvest (and thus, shipments) have been a bit delayed by wet weather (hence the continuing trickle higher!)

Further weather uncertainty is being discussed by talking heads globally as a deep freeze in the U.S. Southern Plains. It was estimated that up to 1/3 of the U.S. HRW wheat crop was at risk of the deep freeze that the region saw over the weekend and to start the week. That said, this winterkill issue gets talked about EVERY year, and whatever we think from December through March is largely irrelevant as the crop isn’t made in these months. Also, worth reminding you that wheat is a weed and can grow in some pretty tough conditions (and this is certain).