Wheat Falls, Despite Wet and Dry Areas
Grain markets were mostly lower heading into the Canadian May long weekend. Profit-taking was seen across the board while soybeans climbed higher on strong U.S. export demand amidst tightening old-crop stocks. New crop futures (shown in the table below) didn’t pull back by as much as front-month values, as there are still plenty of questions for Plant 2022. Quite seriously, time is running out to plant corn and/or wheat in northern states, and the market possibly needs to buy more soybean acres, given the strong demand function. Looking at the bigger picture, we might see more speculative dollars come into the commodity complex in the coming weeks as equity markets are moving into bearish territory with the S&P 500 and Nasdaq exchanges now at seven straight weeks of losses (their longest losing stretch since the 2001 dotcom crash), while the Dow has now dropped either straight weeks (the worst since 1932!).
In Europe, crop ratings for French wheat and barley fell last week after a hot spell hit the region, while Egypt rejected a boatload of wheat coming out of Ukraine, as the destination country refused to accept what they speculate was grain stolen by the Russians. In other geopolitical news, China’s government has earmarked $1.5B USD for “one-off” subsidies to help crop production this year, principally to alleviate rising input and operational costs during the upcoming harvest and fall-seeding campaigns.
Officials in Beijing also announced this past week that Viterra and Richardson’s canola export licenses have been reinstated, ending a three-year ban of shipments from the two companies, which undoubtedly was a political response to Huawei's CFO, Meng Wanzhou, being arrested by Canadian authorities. With these two announcements alone, it’s clear to me that Beijing is getting a little more worried about food security, namely food price inflation. It’s also worth mentioning that Indonesia repealed its palm oil export ban after three weeks, following the predicted plunge in domestic prices for the country that produces about 60% of the world’s supply.
Coming back to wheat, winter wheat futures saw some selling this week after the less-bearish-than-initially thought Wheat Quality Council crop tour through Kansas suggested average HRW wheat yields of 39.7 bushels per acre, versus the USDA’s forecast of 39 bu/ac and Harvest 2021’s 52 bu/ac. However, the tour suggested 11% abandonment of acres, almost double the USDA’s estimate, but this would still produce 261M bushels, about 30% less than last year’s output. The ongoing dryness in the region will likely also see nearby Colorado’s wheat production cut by 42% year-over-year to about 40M bushels, and Oklahoma’s harvest will be just half of what it was a year ago.
Dryness is the opposite of what farmers in the Northern Plains and Eastern Canadian Prairies see, as the cool, wet spring has kept most producers out of the field. Usually, through the Canadian May long weekend, farmers both south and north of the western U.S. and Canada border are nearing the finish of their planting campaign, but this year, many farmers have barely even started. For example, in North Dakota, as of last week, just 4% of expected corn acres and 17% HRS wheat acres had been planted, well below the five-year average of 41% and 60% respectively! More broadly, with seeding about two weeks behind, Plant 2022 in North Dakota, South Dakota, and Minnesota is now officially the worst start ever to the growing season for these states.
It’s worth noting that North Dakota was supposed to plant 3.5M acres of corn this year, but it’s estimated that that number will drop by at least 1M, with the insurance cut-off date being May 25. This is in addition to negative past experiences of farmers there planting corn in June having to deal with low test weights and high drying costs in the fall (and energy prices are at record highs right now!). 2011 and 2013 were similarly wet springs in the Northern Plains and 1M acres of spring wheat were lost then, but farmers today may be willing to deal with lower crop insurance coverage in order to get the cereal seeded and chase high prices. Similarly, it’s unlikely that all 980,000 forecasted acres of durum will get planted in North Dakota this year as, like spring wheat, yields could be compromised by the delayed start and late July heat hitting the crop when it’s in a key growing phase (and don’t forget the threat of an early frost). The other option for these producers is to just wait and plant soybeans (whose insurance date in North Dakota is not until June 10), sunflowers, or other shorter-season crops.
Across the 49th parallel, farmers in Manitoba and Eastern Saskatchewan are about two to two-and-a-half weeks behind their usual planting campaigns. As Agriculture Canada notes in their map of percent of average precipitation above, the large majority of the region has got more than 200% of their average precipitation over the last 30 days. This translates to the reality that the next three weeks are going to be very important in terms of what gets put in and what doesn’t since, in past years of similar slow starts, 2–4M acres went unseeded in this eastern area of the Prairies. On the flipside, Plant 2022 progress in most areas of Alberta and western Saskatchewan is going quite well, save for some areas of the Peace Region which is basically just as wet as Manitoba.
Overall, there aren’t a lot of areas across North America that are experiencing good starts to the Plant 2022 campaign, as most regions are either too wet or too dry. Late last week, Agriculture Canada released its updated supply and demand tables, using Statistics Canada’s planted acres estimates released on April 26, and surprisingly, it did not change yield estimates for either durum or non-durum wheat but did for almost every other crop. While we’ll dig into the updated supply and demand tables from AAFC in next week’s Wheat Market Insider column, my yield expectations for Harvest 2022 remain more bullish than their forecasts. That said, as we near the calendar flipping to June, how many acres of wheat actually get drilled into the Prairie soil is possibly now the more important variable.
Founder | Combyne Ag