Market Insider

A Blip in the Wheat Prices Trend

Grain markets pulled back to start the month of November as, despite the fundamental bullish undertones that remain in the market, traders started positioning for a potentially bearish WASDE on Tuesday, November 9th. As the global supply of milling wheat remains low but global demand is consistent, Chicago SRW wheat futures did briefly top $8 USD/bushel this past week, which would be the highest its been in nearly nine years. However, after racking up nearly $1 USD/bushel in the past 2 weeks, some profit-taking was seen towards the end of the trading week. The pullback was mirrored by the Kansas City HRW and Minneapolis HRS wheat exchanges.

The soy complex took the biggest hit this week though as bearish headlines included expectations that the USDA will increase average U.S. yields for this year’s harvest in the November WASDE, better-than-expected start to the Brazilian growing season, and U.S. exports to China likely dipping (at least compared to last year). On that note, the USDA’s office in China says that the People’s Republic likely will also import less wheat in 2021/22 as wheat prices are now too expensive relative to other substitutes, notably corn.

Also this past week, we got the USDA’s model-based Plant 2022 acreage forecasts, including U.S. soybean acres of 87.5M acres, would be an increase of 300,000 year-over-year. For corn’s area, the USDA is expecting a drop of 1.3M acres to 92M, largely attributed to the higher cost of fertilizer pushing more U.S. farmers to consider soybeans or wheat, instead of nitrogen-hungry corn on their land. Therein, thanks to prices being at multi-year highs for almost all types, total U.S. wheat acres are estimated by the USDA to jump by a significant 2.3M acres to 49M. Assuming we don’t see similar drought issues like we did this past year, in my opinion, a year from now, we could see wheat prices that are 20 – 40% of what they are today. Worth noting, however, is that the price performance of new crop wheat futures this past week was nowhere near as negative as their front-month contract counterparts.

Speaking of today, we’re now officially one-quarter of the way through the Canadian wheat 2021/22 crop year and the pulse of exports so far is quite reflective of this year’s smaller harvest. For non-durum, Canadian wheat exports, shipments are tracking nearly 2 MMT behind where we were a year ago, and almost 1 MMT behind the 3-year average (Note that this 3-year average is elevated because of last year’s record pace).

On the flip side, the durum market has been trading in a bit of a hand-to-mouth world, where some trades happen, prices stay elevated a bit, and then pause, or even pull back a bit, before the next round of trading/contracting. Case in point was Week 12’s marketing year low of just 4,100 MT of durum shipped out of the country, but Week 13 showed a significant rebound with the 3rd-largest weekly sailings of the year. Cumulatively though, total Canadian durum exports of just over 860,000 MT so far in 2012/22 are still 22% behind last year’s pace and 15% below the 3-year seasonal average.

Overall, this week we saw a small pullback in grain markets but we’re getting into the time of year where Black Sea wheat exports are slowing down and South American growing conditions are watched more closely. Fundamentally speaking, we’re still seeing more hedge fund/speculative money pile into the grains complex, while replenishing global wheat supplies won’t happen until next year’s harvest! Thus, while we may see another week or two of poor performance before the end of the 2021 calendar year, I and many others expect elevated wheat prices to stick around into the first few months of 2022.

To growth,

Brennan Turner

Founder | Combyne.ag