Market Insider

Sitting on the Fence

Grain markets saw a sell-off to start the month of December as the complex climbed a bit to start the week before profit-taking took hold. Specific to the wheat complex, most of the focus was on government reporting, notably from Canada, Russia, and Australia, but drought concerns in the Southern Plains slowed selling in Kansas City & Chicago. In my opinion, while winter “drought talk” certainly helps write headlines, it’s more of a “noise” factor today. As we flipped the calendar to December, also grabbing headlines this week was the United Nations FAO food price index, which came out at its highest level since June 2011. Supporting the elevated levels was the cereal price portion climbing by more than 3% from October.

In the Land Down Under, Aussie government agency ABARES said this week that a record 34.4 MMT of wheat was harvested by farmers in the country this year, 3% more than last year’s haul of 33 MMT, which was the previous record! Basically, after 3 years of drought conditions, Australian farmers have reaped two bumper crops. This includes a record 5.7 MMT of canola, 27% higher than last year’s output, which was also a record! Finally, a 13.3 MMT Aussie barley harvest, is their second-largest production number on record. All this in mind, as mentioned in last week’s Wheat Market Insider, the quality of the higher-protein/value wheat harvested in Eastern Australia is still a question mark as, notably, 75% of the crop in New South Wales (or roughly 9 MMT) hadn’t been harvested yet before about 2 weeks of rain fell on it.

While traders looked mostly at the total volume that Australia is expected to take off, they also took a bearish note of how much Statistics Canada increased the country’s spring wheat production number. StatsCan in their final production report of the year, increased Canadian spring wheat production by nearly 700,000 MT to now sit at 16 MMT. While this is still down 38% year-over-year and 33% below the five-year average, the extra supply will certainly be gobbled up by international or domestic buyers as demand for high-protein wheat remains strong.

On the flip side, Canadian durum production was felled to a record-low number of just 2.65 MMT, a drop in output of 60% year-over-year and 56% below the five-year average. Compared to their September estimates, StatsCan lowered average durum yields in Alberta by more than 3 bushels per acre, but the reduction was more significant in Saskatchewan with a 10 bpa downgrade (highlighted in the table below). Quite clearly, with nearly 900,000 MT less Canadian durum than first thought, higher prices will intuitively reflect this major revision as the pipeline of supply will likely be close to nil before the 2022/23 crop year starts on August 1, 2022. We’ll get Ag Canada’s updated supply and demand tables the week before Christmas, but I think it’s clear to see that there’s a bit more room for spring wheat exports, but with the significant decrease in durum supply, export expectations will be dialed back.

Finally, I’m closely watching two developments in Russia:

1. A grain export quota of 14 MMT, including 9 MMT of wheat for February 15 – June 30, 2022, and

2. Russia possibly invading Ukraine, after amassing more than 115,000 troops at their shared border.

On this last item, while it could be very bullish for wheat, world governments are all trying to persuade Putin and Co. to calm down, with many thinking Moscow is bluffing to get more attention for its own political demands. On the flip side, if Russia were to invade, there’d likely be a lot of sanctions placed on them, especially in the commodities space, with energy high on the list (which, in turn, could help any non-Russian energy companies, such as many of the American ones). Overall, wheat markets are sitting on the fence, with lots of bullish factors in play today but ones that could ultimately fizzle out over the coming weeks.

To growth,

Brennan Turner

Founder |