Too Little, Too Late for Plant 2022?
Grain markets were mostly green to finish the last full week of May, as ongoing weather premiums and geopolitical challenges remain front and center, just as we near the start of a 2022/23 crop year that is certainly going to see consistent demand, but smaller supply. Winter wheat futures pulled back on the suggestion that Russia was willing to open up Ukrainian ports to let grain get too hungry nations, but the market rebounded towards the end of the week as it realized that Russia’s talk is cheap, more negotiations need to take place, and the many infrastructure challenges that need to be resolved, such as the de-mining waters around said Ukrainian ports. Hot temperatures in western parts of Europe – including major wheat-producer France – also supported the market rebound towards the end of the week. Accordingly, Friday’s green finish to the week helped most technical charts look a little more bullish heading into the U.S., Memorial Day long weekend, and the month of June.
Oats were the big winner of the week, but spring wheat futures also inched higher as, through last Monday, Minnesota and North Dakota only had 11% and 27% of planned HRS wheat acres planted, light years behind the five-year average of 90% and 80% respectively! More rain this past week didn’t help much as farmers remain about 2 weeks behind in their Plant 2022 campaigns. It’s basically the exact same situation just north of the border, as ongoing rains continue to stall most Manitoba farmers’ seeding plans, with just 10% of the province planted so far, well behind the five-year average of 77% for this time of year. As a result of well-above-average rains – including over 260% of normal in eastern and central Manitoba since early April – more farmers in the Keystone province may switch out of corn, soybeans, and peas, into cereals like wheat or oats, or even canola.
In Saskatchewan, it’s a little better, with about half of the crop in the ground now, but this completion percentage is inherently skewed to the drier, western part of the province, whereas, in the eastern half, Plant 2022 is only about 25% - 30% complete, 40 percentage points behind the average. Alberta farmers are running pretty close to the seasonal average, with about 3/4s of the crop planted through this past week, with the slowest start in the Peace region and northwest areas of the province (which have been, arguably, just as wet as Manitoba).
This brings us back to Agriculture Canada’s updated supply and demand estimates that suggest a return to near trendline yields and a significant rebound in production. With the extremely delayed start to Plant 2022 in half of the Canadian Prairies, production expectations should surely be lowered slightly by now, be it because of fewer seeded acres or less optimism in yield potential. The flip side is that I do agree with AAFC that demand is going to remain strong, especially when you account for smaller exports from Ukraine and more protectionist food policies in many parts of the world.
With this in mind, many countries remain food imports-dependent, including North Africa, where a political push for self-sufficiency in grain production was stalled this growing season due to hot, dry conditions. Thus, it’s very likely that the likes of Morocco and Algeria will be importing more Canadian durum this year, and on the whole, Agriculture Canada is forecasting Canadian durum exports in 2022/23 to climb to 4.4 MMT, or 70% of a total crop they forecast at 5.68 MMT. As the first chart below shows, I’m much less optimistic on the production side, with my model using an average Canadian durum yield of 28.5 bushels per acre, up from last year’s 18.3 bu/ac, but below AAFC’s 34.2 bu/ac.
Of course, if good rains fall in western Saskatchewan and southwest and south-central Alberta, my production forecast would be more optimistic but it’s safe to say that durum prices this year will remain in double digits (per bushel). This price prediction has just as much to do with supply as it does with demand. More specifically, I believe that demand will remain strong for Canadian durum, especially with production uncertainty of nearly 1M acres that’s supposed to get seeded in North Dakota. Therefore, I think ending stocks for the 2022/23 season will be much tighter than AAFC’s current forecast of 1 MMT. This tighter scenario matches the IGC which sees global durum inventories by the end of 2022/23 contracting slightly year-over-year to 6.2 MMT.
It's worth noting that Agriculture Canada did acknowledge the relatively wet, average, and dry conditions in Manitoba, eastern Saskatchewan, and northern Alberta. This was part of the explanation provided as to why they lowered their yield expectations for some crops compared to their April forecast, namely barley (-3 bu/ac month-over-month), oats (-6.3), rye (-2.2), flax (-1.6), and canola (-3). Somewhat perplexing though, was that AAFC raised their average yield expectations for soybeans (+1.5), chickpeas (+0.9), mustard (+0.4), canary seed (+0.5), and peas (+1.8). With the above in mind, for some reason, AAFC did not change their yield estimates of Canadian durum and non-durum wheat.
For non-durum Canadian wheat, my average yield estimate for Harvest 2022 sits at 47.8 bu/ac, up from last year’s 39.9, but still below Agriculture Canada’s forecast of 51.2 bu/ac. Thanks to more wheat likely getting planted in Manitoba and eastern Saskatchewan than first thought, production may top 24 MMT, a level my model is currently below. However, again, with such tight competition for wheat in the global market this year, I expect demand to remain strong, with my estimate of exports pegged at 16.5 MMT, not far behind AAFC’s 17.5 MMT.
Canadian non-durum wheat ending stocks could end the 2022/23 crop year closer to 3 MMT, not the 4 MMT that Agriculture Canada is currently predicting. Thanks to demand though, we agree that, like durum, prices should stay in the double digits for the 2022/23 crop year. I’m cognizant that the good moisture profile created by the recent excess moisture could help in the long run. Still, when the crop actually gets planted (let alone how much of it), the subsequent timing of summer heat, just creates more questions than answers, and that’s why we continue to see spring wheat prices trek higher. All things being equal, wheat prices are more likely to plateau in the next week or so, at least until more is known about Russia’s use of food for the world as a bargaining chip, the first yields of the U.S. and European harvests, and the emergence of North America’s delayed Plant 2022 campaign.
Founder | Combyne Ag