Market Insider

A First Look at Canada’s Plant 2022

Wheat markets saw a significant sell-off on Friday due to healthy moisture in the Dakotas and a freshly proposed Ukraine aid bill from the Biden administration that included a $10/acre incentive for U.S. farmers to plant more winter wheat this fall. Also impacting grain markets this week was Statistics Canada’s first estimate of the country’s Plant 2022 acres, and Indonesia, the world’s largest palm oil producer, banning exports to protect domestic supply & prices.

A slow start to the North American seeding campaign is adding some weather premiums a bit earlier than usual. This is especially true for U.S. corn as the percentage of fields planted through last week is the smallest it’s been in nearly a decade. The longer the delay for U.S. corn to get put in, especially in the Northern Plains, the more likely those fields will get seeded instead with soybeans, pulses, or maybe even cereals. On that note, it’s worth mentioning that new crop canola futures were the biggest winner in April, up nearly 15% or $141 CAD/MT, while HRS wheat futures were 2nd, gaining more than 10%, or $1.06 USD/bushel to nearly $11.50 on the Minneapolis exchange. New crop December 2022 corn futures were the 3rd-best performer, up nearly 10% or ~70¢ USD/bu to top $7.50.

Satellite imagery of China’s winter wheat suggests the crop is rebounding nicely, and while about a quarter of the crop continues to look suspect because of dry conditions, the other 75% of the crop could make up for any production shortfalls. This probably won’t be the case in the U.S. Southern Plains as rainfall continues to miss a large majority of the region – quite literally, the western two-thirds of Kansas has gone at least 180 days without one inch of rain. The USDA’s drought monitor noted this past week that 75% of America’s winter wheat area is currently in a stage of Severe to Extreme drought. Since the U.S. winter wheat crop is one-to-two weeks behind in development in a lot of places, the only potential saving grace is a major moisture event in the next 2 weeks. Without some rain in the Southern Plains, hot winds are going to push crop adjusters to zero out more than a few fields. 

Accordingly, Plant 2023 has the attention of politicians, as the White House is trying to get American farmers to help make up for the shortfall of Ukrainian wheat exports, by planting more winter wheat across the United States. There are many skeptics of a plan to further incentivize farmers to plant specific crops when the market is already telling them to do so. In addition to some “preferred” crop loans, designed to allow a farmer to hold onto their crop longer in order to get a better price later in the year, some analysts believe this is just the federal government’s way of subsidizing against the record-high crop input costs – namely fertilizer – that farmers are facing.

Some of those higher input costs likely help explain how Canadian farmers are divvying up their acres for the upcoming Plant 2022 campaign. Canadian canola acres are expected to fall 7% or nearly 1.6M acres year-over-year, and instead, plant more oats, wheat, corn, and lentils. The other fact is that there are lingering drought conditions across Western Canada that are likely pushing for more cereals that can grow in below-average moisture conditions, compared to the likes of canola, flax (-16% or -160,000 acres YoY), or peas (-7% or ~270,000 acres). Saskatchewan farmers alone are expected to plant 1.26M more spring wheat and durum acres than last year, accounting for three-quarters of the 1.67M year-over-year increase in total wheat acres across Canada.

Armed with these fresh acreage estimates – which were collected via phone surveys in March – there are new balance sheet implications for the wheat market (this week, I’m focusing on non-durum wheat, while we’ll dig into durum next week). Many analysts believe that there’ll be a rebound in trendline yields for Canadian wheat, but I’m not in that camp. My pre-growing season model suggests an average non-durum wheat yield of 47.8 bushels per acre (bu/ac) for Harvest 2022, and while that’s up from the 39.9 averaged in Harvest 2021, it’s below AAFC’s current 51.2 bu/ac forecast and the 5-year average of 51 bu/ac. Part of my rationale is studying yields that follow a drought, and the best recent example is 2008/09: average yields jumped by nearly 9 bushels/acre from the previous year, but because planted acres ballooned by nearly 2.15M acres, production rebounded significantly, as the chart below shows.

Therein, because I believe Canadian non-durum wheat production will come in below 24 MMT (and current forecasts), and because wheat demand will stay strong throughout the next 12 months, 2022/23 ending stocks could drop even closer to 3 MMT, a record tight carryover. Further, with a lot of attention on replenishing supplies, HRS wheat prices will stay sensitive to any weather issues, such as the cool spring many parts of Western Canada have experienced so far, only delaying the start of Plant 2022. It’s also interesting to note that Canada’s crop potential is getting increased coverage by American agricultural media of Canada’s crop potential, which I take as further confirmation of the importance of this year’s wheat harvest.

To growth,

Brennan Turner

Founder | Combyne Ag