Looking at winter sales, shipping with Canadian crops

Grain markets finished the first week of November mostly in the green on the back of some funding buying and shortcovering at the end of the week, amidst other geopolitical and production issues. Following last weekend’s news that Russia was pulling out of the Grain Deal with Ukraine, which allowed food exports to pass safely through the Black Sea, wheat futures jumped 6%. However, thanks to some remedial talks, Russia agreed to come back into the table, and while wheat gave back much of this earlyweek rally, it still ended the week with some decent gains. U.S. winter wheat futures were also underpinned by the USDA’s crop progress report printed a record-low condition for the first week of quality ratings for winter wheat, with just 28% rated good-to-excellent. There are similar winter wheat concerns in Europe as a warm October accelerated crop development and might leave more fields than usual susceptible to winterkill.

Staying in the Black Sea, Ukraine has exported 14.3 MMT of grain so far in their 2022/23 crop year, a 31% decline compared to the 20.6 MMT sailed through this time a year ago. This current place will likely be offset by a smaller crop, a trend that’s likely to continue into the 2023/24 crop year. As it stands today, it’s estimated that Ukrainian farmers will have planted 30% – 40% less winter wheat than a year ago, suggesting that we won’t be able to count on the eastern European nation next year to help increase already-tight inventories amongst the world’s major wheat exporters.

Heading to the other side of the equator, the Buenos Aires Grain Exchange cut their Argentine wheat production estimate again, this time by 1.2 MMT to 14 MMT (we’ll see if the USDA lowers their estimate for the second straight month in Wednesday’s November WASDE report). On the other side of the southern hemisphere, wet weather continues to slow the pace of harvest in eastern Australia, with New South Wales seeing over 100 flood warnings amongst its communities. The most recent estimates suggest that about half of the wheat crop on the east coast, or about 8 MMT, will go into the feed column. Despite many fields still standing, there’s more rain in the forecast and so, unsurprisingly, the spread between milling and feed grains in the region is widening, with feed grain prices falling more than milling wheat prices are increasing.

Coming back home, we’re officially one-quarter of the way through the Canadian 2022/23 crop year, and while export volumes are starting to pick up, heavy rains on the West Coast have slowed port activities a bit. Crop year to date, China has been the largest market for Canadian wheat, doubling what they imported through the same time a year ago, and accounting for about 20% of total wheat exports so far this year. Other major markets for Canadian wheat include the likes of Japan, Bangladesh, and the United States.

Overall, with 4.63 MMT of non-durum Canadian wheat shipped out so far, that’s up 41% versus last year, and 9% better than the 3-year average (which includes last year’s drought-limited volumes). To hit the 18.3 MMT in total non-durum wheat exports that Agriculture Canada is forecasting, we’ll need to ship out about 350,600 MT per week over the rest of the season (we’re currently average 356,000 MT). Comparably, Canadian durum exports volumes through 13 weeks total just under 825,000 MT, with an average weekly load of less than 65,000 MT. To meet AAFC’s full crop-year target of 5 MMT, we’ll have to see a weekly average of 107,000 MT shipped out for the rest of the year (and yes, I do believe that the pace will pick up, as evident by the last 3 weeks in the chart below).

As mentioned, going forward, grain markets will be influenced by this Wednesday’s November WASDE report from the USDA, as well as any updates out of Ukraine and ongoing moisture concerns in the U.S. Southern Plains. Looking at the Black Sea, one takeaway from last week is that if there’s any bullish change in Black Sea export conditions, any premiums may not stick around too long, and so one should be mindful of making a small sale on this type of “pop”. Further, to be clear, just because Putin has re-committed to the current version of the “Grain Deal”, this doesn’t mean that Russia will stay in the deal coming renewal time in a few weeks. That said, if the U.S. Dollar weakens, this will likely put pressure on Canadian cash wheat prices, in the form of basis levels weakening.