Market Insider

Less U.S. Wheat to Go Around

Grain markets finished the last week of September mostly in the green, except for soybeans which was pressured by surprisingly bearish inventories shown by the USDA in their September 30 stocks report. In it, old crop soybean supplies were estimated at 256M bushels (or nearly 7 MMT, if converting bushels into metric tonnes), and while that’s a drop of 51% compared to last year, it was much higher than what the market was expecting. For wheat, the stocks report was bullish as total stocks of all American wheat were pegged at 1.78 billion bushels as of September 1, 2021 (or 48.4 MMT). This is down 18% year-over-year, and a lot smaller than what the market was anticipating.

Meanwhile, U.S. durum stocks were pegged at just under 47M bushels (or just under 1.3 MMT), a drop of 34% year-over-year. While the total wheat and durum stocks numbers might seem high, these inventory reports are based off September 1 data, meaning that they include this year’s harvest volume. Put another way, this September 30 report is the largest number we’ll see all year for U.S. wheat stocks.

With that in mind, the USDA also released their Small Grains report last week, which showed a durum harvest of just 37.3M bushels (or just over 1 MMT), and a hard red spring wheat output of 297.4M bushels (or almost 8.1 MMT). Compared to Harvest 2020, American durum production is down 46%, while their HRS wheat harvest is 44% lower. These production numbers are a function of mostly lower yields, especially durum as only 131,000 fewer acres were harvested than 2020, but average yields were down 41% to 24.3 bushels per acre!

Looking at the quarterly performance of the market, you can clearly tell that wheat, oats, and canola were the big winner throughout the growing season. This table might be an interesting one to save because it shows what sort of price impact a drought in one production region can have on the futures markets (I’m talking about Western Canada and the U.S. Northern Plains here). Of course, values in the paper trade have been amplified by COVID-related supply-chain disruptions, but at the end of the day, if you don’t have the supply to match consistent demand, prices must go up.

Given the drought, the Canadian Grain Commission is reporting that the average protein levels of samples submitted thus far are around 15%, well above the 13.5% average! Therein, protein spreads might be somewhat narrower than what we first expected as this quality can be blended off with lower quality product to get to that 13.5% protein milling requirement. And with the North American spring wheat and durum harvests now basically wrapped up, we’ll start to see more bidding for winter and spring contracts, and possibly even new crop 2022 opportunities.

On the durum side of things, the Moroccan harvest this year nearly topped 2.5 MMT, which would be at least 3 times what they produced in Harvest 2020, and a healthy improvement over the 5-year average of 1.53 MMT. Morocco is usually a heavy buyer of Canadian durum, but that’s unlikely to happen this year, and could weigh on values over the winter and spring months. That said, relative to years past, there is not a lot of durum to go around and so we should NOT expect exports to be impressive by any means.

To wrap things up, as I discussed in last week’s column, Agriculture Canada is suggesting 2021/22 non-durum wheat exports will fall 39% year-over-year to 12.5 MMT, while international durum shipments are expected to fall by 46% to just 3.1 MMT. For context though, 2020/21 wheat and durum exports were new records, so a comparison to the 5-year average is a better measuring stick. That said, if AAFC’s forecasts are realized, durum exports would be 37% lower than the 5-year average of 4.9 MMT, while non-durum shipments would be 32% below their seasonal average of 18.5 MMT. Ultimately, through Week 8 of the 2021/22 crop year, 2.68 MMT of non-durum wheat has been exported, down nearly 20% year-over-year, while 584,000 MT of durum has been moved out of country, which is down 23% compared to a year ago.

To growth,

Brennan Turner