Market Insider

Wheat Markets Finding Some Legs

Grain markets ended the third week of October all in the green as supply issues are being exacerbated by consistent, strong demand, especially for wheat. At the Friday close last week, Chicago SRW wheat futures made a new two-month high, Kansas City HRW wheat futures sat at their highest level since 2014, and HRS wheat futures in Minneapolis topped $10 USD/bushel for the first time since 2012!

Adding to wheat’s bullish narrative is that, given the price of fertilizer being so high, more farmers may dial back their application plans which could negatively impact the potential of both yield and protein for Harvest 2022. In other crops, strong demand fundamentals are helping soybean and canola values (the latter of which we know has a serious supply issue), while rain delays for the U.S. harvest have supported corn futures.

Speaking of rain, the Chinese Ministry of Agriculture has admitted that heaving rainfall has delayed winter wheat planting in major production regions, with the seeding pace about half of its usual speed. On the flipside, through September / the first nine months of the calendar, pork output in the People’s Republic is up nearly 40% year-over-year, supporting the demand narrative mentioned above.

Elsewhere in global wheat headlines, Egypt says they have about 5 months worth of reserves while Australian ports are booked up until the end of 2021 as expensive Black Sea options are pushing international buyers to freshly-harvested, cheaper supplies from the Land Down Under, or even from the U.S. and Canada. Worth noting is that Russia’s wheat export tax continues to increase, now sitting at $67 USD/MT (or $1.82 USD/bu or $2.25 CAD/bu and $82.85 CAD/MT if converting metric tonnes to bushels). Fundamentally speaking, as we push into the winter months, supply chain woes are amplifying the push by buyers to secure their needs sooner than usual. Put another way, to guarantee themselves the logistics needed to move their commodities from Point A to Point B, buyers are starting to lock in contracts further along on the calendar. As a by-product, this is helping support nearby prices as buyers across the spectrum compete for reduced supplies from this year’s drought-riddled harvest.

Case in point, one major takeaway from last week’s updated supply and demand tables from Agriculture Canada is that the government agency’s continued rise in forecasted average prices for both durum and non-durum wheat. For durum prices, in July, Ag Canada was estimating an average price of $280 CAD/MT (or $7.62 CAD/bushel). That was raised to $350/MT ($9.53/bu) in August, then $400/MT ($10.89/bu) in September, to now sit at $550/MT ($14.97) in their October forecast. Compared to what’s currently trading though, Agriculture Canada is a bit on the low side with average durum prices (#1 quality, 13.5% protein) for spot movement sitting comfortably above $20 CAD/bushel (or $736 CAD/MT).

The meteoric rise of the durum market since July should be a surprise to any player who understands the global market, but the question now is if durum prices will continue to rise, level out, or start to pull back? According to the Canadian Grain Commission, most of Canada’s durum quality is being graded as #1 with an average protein of 15.7% or #2 quality with an average protein of 15.9%.

Now, that appears impressive on paper, but there’s obviously not as much to go around in the U.S. and Canada this year, which is part of the reason why the International Grains Council is pegging global 2021/22 ending stocks at 6.2 MMT, a drop of 23% year-over-year and the lowest volume in 14 years. Therefore, I wouldn’t be surprised if we continue to see durum prices stay above $20 for the next few weeks or possibly even until the 2022 calendar year starts as supply shortages and blending challenges remain.

It’s a different story, however, for hard red spring wheat, as I expect the market to continue to bid higher in the coming weeks and months as similar supply and quality concerns add to the volatility of the market. While Ag Canada hasn’t raised its expectations for Canadian non-durum wheat prices as much, the cash market continues to show some significant gains (and as evidenced by the chart below). Therein, my call stands from last week’s column about how HRS wheat prices could mirror or even eclipse the record run seen in 2007/08.

To growth,

Brennan Turner

Founder – Combyne Ag